SUMMARY: The Foreign-Trade Zones Board (the Board) hereby revises its
regulations issued pursuant to the Foreign-Trade Zones (FTZ) Act of
1934, as amended (the Act), concerning the authorization and regulation
of foreign-trade zones and zone activity in the United States. The rule
is comprehensive and constitutes a complete revision, replacing the
present version of 15 CFR part 400. The changes simplify many of the
Board's procedures, including those for users to obtain authority
related to manufacturing and value-added activity, and include new
rules designed to address compliance with the Act's requirement for a
grantee to provide uniform treatment for the users of a zone. The new
rules improve flexibility for U.S.-based operations, including export-
oriented activity; enhance clarity; and strengthen compliance and
enforcement. The revisions also reorganize the regulations in the
interest of ease-of-use and transparency.

DATES: Effective Date: April 30, 2012, except for Sec. Sec. 400.21-
400.23, 400.25 and 400.43(f) which contain information collection
requirements that have not yet been submitted for OMB review. The Board
will publish a document in the Federal Register announcing the
effective date.

SUPPLEMENTARY INFORMATION:
Foreign-Trade Zones (FTZs or zones) are restricted-access sites in
or near U.S. Customs and Border Protection (CBP) ports of entry. The
zones are licensed by the Board and operated under the supervision of
CBP (see 19 CFR part 146). Specifically, zones are physical areas into
which foreign and domestic merchandise may be moved for operations
involving storage, exhibition, assembly, manufacture or other
processing not otherwise prohibited by law. Zone areas ``activated'' by
CBP are considered outside of U.S. customs territory for purposes of
CBP entry procedures. Therefore, the usual formal CBP entry procedure
and payment of duties is not required on the foreign merchandise in
FTZs unless and until it enters U.S. customs territory for U.S.
domestic consumption. In fact, U.S. duties can be avoided on foreign
merchandise re-exported from a FTZ, including after incorporation into
a downstream product through activity in the FTZ. Zones have as their
public policy objective the creation and maintenance of employment
through the encouragement of operations in the United States which, for
customs reasons, might otherwise have been carried on abroad.

Domestic goods moved into a zone for export may be considered
exported upon entering the zone for purposes of excise tax rebates and
drawback. ``Subzones,'' sites established for specific uses, are
authorized by the Board through grantees of general-purpose zones,
including where certain requirements, such as ``adjacency'' (distance/
driving time), for general-purpose zone sites cannot be met. Goods that
are in a zone for a bona fide customs reason are exempt from State and
local ad valorem taxes.

Zones and subzones are operated by corporations that have met
certain regulatory criteria for submitting applications to the Board to
operate zones. Under the FTZ Act, zones must be operated under public
utility principles, and provide uniform treatment to all that apply to
use the zone. The Board reviews and approves applications for authority
to establish zone locations and to conduct certain activity within
zones, and oversees zone grantees' compliance with the Board's
regulations. The Board can limit or deny zone use on a case-by-case
basis on public interest grounds. In response to applications and
notifications, the Board can also provide the applicant with specific
authority to choose whether to pay duties either on the original
foreign material or on a downstream product incorporating the foreign
material.

To receive approval to operate a zone, an applicant must
demonstrate the need for zone services, a workable plan that includes
suitable physical facilities for zone operations, and financing for the
operation. Successful applicants are granted licenses to operate zones.
License grantees' sponsorship of specific sites for proposed FTZ
designation is based on the grantees' determinations regarding the
sites' appropriateness and potential for FTZ use, and a grantee may
subsequently request removal of FTZ designation from a site based on
factors such as the grantee's determination that projected FTZ use has
not occurred.

Through this action, the Board is updating and modifying the rules
for FTZs. Continued interest in zones, on the part of both communities
providing zone access as part of their economic development efforts and
firms using zone procedures to help improve their international
competitiveness, demonstrates zones' importance to international trade
and to investment in the domestic economy. These regulations generally
simplify and clarify requirements pertaining to FTZ use, while also
helping to ensure compliance with specific statutory and regulatory
requirements. The regulations are also intended to improve access and
flexibility for U.S. manufacturing and value-added operations, and to
enhance safeguards in order to avoid potential negative economic
consequences from certain zone activity.

In developing the final rule, the Board considered all of the
comments received in response to its Federal Register notice of
December 30, 2010 (75 FR 82340) proposing revisions to 15 CFR part 400.
The comments received in response to the notice and the Board's
positions on the points raised in the comments are summarized below.
The sections listed in the headings are those of the final rule, and
references are made to the previous Federal Register notice when
appropriate.

Board position: It is not necessary to address or describe in the
Board's regulations trade agreements and trade programs, which may
change during the effective period of the regulations. The phrase
regarding production activity has been retained because it clarifies
that production activity is the mechanism through which a product
emerging from a zone could differ from the material admitted to the
zone. Retaining the phrase helps reinforce that production activity is
subject to specific requirements in these regulations.

Comments: Numerous commenters proposed adding definitions for the
following terms: Activation; administrator (to replace the term
"agent''); alternative site framework (ASF); Board Order; domestic
status; free trade agreement; general-purpose zone; inverted tariff;
modification; NAFTA; non-privileged foreign status; privileged foreign
status; service area; Special Tariff Treatment Program; traditional
site framework; grantee; and zone restricted status. One or more
commenters stated that the proposed definition of agent is or may be
too broad, may potentially extend beyond the statutory reach of the
Board, and appears to be focused on an agent of the grantee although
there are other agency relationships in the FTZ program.

Board position: We have added definitions for the terms alternative
site framework, Board Order, inverted tariff, modification, and service
area in response to comments submitted. We have not defined either
``agent'' or ``administrator.'' We have not adopted the term
``administrator'' as a substitute for the proposed term ``agent''
because the final provisions of section 400.43 instead simply refer to
a party that undertakes a function ``on behalf of a grantee'' (thereby
eliminating the need to use or define any more specific term(s) such as
agent or administrator). Regarding addition of a definition for
``grantee,'' the proposed regulations already contained a definition of
``zone grantee.'' We have retained that term and definition to help
clarify that the zone grantee is the overall sponsor of the zone and
recipient of the authority from the FTZ Board, and that zone
participants are not also ``grantees'' of some sort.

The terms, activation, domestic status, non-privileged foreign
status, privileged foreign status, and zone restricted status are
defined in CBP's FTZ regulations (19 CFR part 146), and CBP is the
primary agency using these terms. Defining these terms in two agencies'
separate regulations would significantly complicate any potential
refinement or redefinition of them that might prove necessary in the
future. In addition, the commenters' proposed definition of activation
differs from the definition of that term in the FTZ regulations of CBP,
the agency responsible for activation. For these reasons, we have not
added definitions of the terms in question.

It is not clear we need to add definitions for the terms free trade
agreement, NAFTA, and Special Tariff Treatment Program. These terms are
not used elsewhere in the Board's regulations. Further, these terms may
be defined by other agencies that make use of the terms, so that any
definition adopted by the Board could create a risk of inconsistency
with the other agencies' definitions. Therefore, we have not added
definitions for these terms.

We have not added a definition for general-purpose zone because the
specific use of this term is tied to comments submitted regarding the
need to simplify the Board's structure and processes for designating
zone sites. In a subsequent rule, we intend to evaluate adding a
definition of this term in concert with simplifying the parallel site-
designation frameworks that currently exist, as noted in response to
comments on Sec. 400.11. As a result of our intent to simplify the
site-designation frameworks, the specific implications of a definition
of traditional site framework might evolve. Therefore, at this point we
have not added a definition of traditional site framework for this
final rule.

Comments: Numerous commenters proposed revising the definitions for
the following terms: Foreign-trade zone; grant of authority; person;
port of entry; site; subzone; zone; zone operator; zone participant;
zone project; zone site; and zone user. One commenter stated that the
definition of zone operator should not be limited to an entity
physically on-site at the zone or subzone.

Board position: We have modified the definitions of foreign-trade
zone, grant of authority, and person in response to comments submitted.
For the term ``port of entry,'' commenters proposed adding ``customs
station'' to the definition, but did not explain the implications or
impact of their proposed change. The term ``port of entry'' has long
had a specific meaning, but the meaning of the proposed additional
phrase is unclear and not explained by the commenters. In that context,
we have left the definition of port of entry unchanged.

In response to comments submitted and taking into account changes
adopted elsewhere in these regulations in response to comments (e.g.,
Sec. 400.24(c) allowing designation of general-purpose zone space as a
subzone, where warranted), we have revised the definition of subzone.
Our tying subzone designation to a specific use should provide some
additional flexibility relative to commenters' suggested language tying
a subzone to a specific company. Our definition also reflects our
agreement with commenters that a subzone can have multiple sites. The
definition of a subzone may also be addressed in a subsequent rule
simplifying the parallel site-designation frameworks that currently
exist, as noted in response to comments on Sec. 400.11. In harmony
with changes adopted elsewhere in these regulations (e.g., Sec.
400.36(f)), we have also adopted a definition of ``activation limit.''
Key implications of that term are examined in response to comments on
Sec. 400.36.

For the terms ``zone'' and ``zone user,'' we have retained the
definitions we proposed because changes suggested in comments did not,
in our view, improve clarity or usability. For the term, ``zone
participant,'' we have simplified the definition to improve clarity, in
response to comments submitted. However, we have retained ``property
owners'' within the definition
because the provisions of these regulations in which the term ``zone
participant'' is used have relevance to property owners as well as to
operators and users. We have also replaced the definition of ``zone
project'' with a definition of ``zone plan'' (a term previously
referenced within the definition of zone project) based on the zone
plan's function as the benchmark that the Executive Secretary must use
in gauging whether a modification is major or minor under Sec.
400.24(a)(2). Based on the comments received, we have combined the
definitions of zone site and site under the former term, so that the
two terms will be interchangeable. We have also adopted a suggested
change to replace the phrase, ``organized as an entity,'' with the
phrase, ``organized and functioning as an integrated unit.'' Based on
comments submitted, we have also added ``contiguous'' to the definition
but have modified it with ``generally'' to allow for unusual
circumstances in which parcels are in close proximity to each other and
appropriately constitute a single site, although they are not actually
contiguous.

We have not added suggested language to the definition of zone
operator because the language could have the unintended effect of
reducing flexibility in local zone oversight and related arrangements
at individual zones. However, given the elimination of proposed Sec.
400.43(b)'s requirement for agreements to be made directly with a
zone's grantee, we have modified the definition of zone operator to
reflect that an operator's activity could be under the terms of an
agreement with a third party that acts on behalf of a grantee. With
regard to the comment that a zone operator should not be limited to an
entity physically on-site at the zone or subzone, the comment
accurately characterizes the intent of the definition of zone operator
for purposes of the Board's regulations. Nothing in that definition
should be construed as requiring a zone operator to be an entity
physically on-site at the zone or subzone site being operated. Finally,
we have modified the definition of private corporation (adding the
words ``operating and maintaining'') to parallel the statutory
definition of that term.

Comments: Two commenters supported the proposed definition of
production, while numerous commenters suggested various revisions to
the proposed definition.

Board position: We have revised the definition of production based
on comments submitted, including those expressing concerns about
defining companies' authorized production entirely on the basis of
customs classifications. Our revised definition of production therefore
incorporates language from the definition of manufacturing in the FTZ
Board's prior regulations but also includes language from our proposed
definition of production and from comments submitted. This revised
definition is intended to reinforce the fact that any operation engaged
in manufacturing activity authorized under prior FTZ Board regulations
would not need to request new authority based solely on this revised
definition. Further, the requirements in other sections of these
regulations pertaining to application and notification documents (e.g.,
Sec. Sec. 400.23 and 400.24) maintain the Board's existing practice of
requiring a description of materials, components, and finished products
(accompanied by the 6-digit HTSUS category that constitutes the best
match for the material, component, or finished product). Therefore, the
changes reflected in this and other production-related provisions have
no effect on a zone operation's existing scope of authority in terms of
materials, components, and their associated finished products described
in a notification or application authorized by the Board. The Board may
address through a subsequent notice-and-comment rulemaking process a
further simplified definition of production.

Comment: One commenter requested clear definitions of capacity and
fraudulent intent, and also asked whether convenience of commerce and
public interest are interchangeable and whether it is possible to
define one of those terms and apply it uniformly.

Board position: We have not added definitions of ``capacity'' and
``fraudulent intent.'' Capacity has a commonly understood meaning, and
only one commenter requested addition of a specific definition to this
section of the regulations. Further, our revised approach to production
authority no longer incorporates capacity as an ordinary element of a
production operation's scope of authority. In this context, there is no
need to include a definition of capacity. The sole use in the proposed
regulations of the phrase ``fraudulent intent'' was in the section
allowing for prior disclosure of violations. That section has been
eliminated from these regulations for the reasons delineated in
response to comments on Sec. 400.62, thereby eliminating any need to
define fraudulent intent. The terms ``convenience of commerce'' and
``public interest'' appear in distinct contexts in the FTZ Act, and are
by no means interchangeable. Public interest is a commonly used concept
(i.e., it exists in many contexts outside the FTZ Act) that is
associated with the well-being of the general public. Convenience of
commerce is a distinct phrase in the FTZ Act that pertains to whether
the needs of businesses engaged in international trade are adequately
served by zones.

Comment: Numerous commenters proposed adding a section stating that
the Board has the authority to award the lowest available duty rate
including trade agreement preferences and deleting language stating
that Board decisions must be by unanimous vote and be recorded.

Board position: We have not made the proposed change pertaining to
trade agreement preferences. The Board does not have the authority to
``award'' a duty rate. The Board may allow activity to occur in a zone
that results in the entry of a finished product with a customs
classification that is different than the customs classification of a
component admitted to the zone. The applicability of duty rates
specific to one or more particular trade agreements to entries from a
zone is statutorily determined rather than a matter for decision by the
Board. Finally, we have retained language stating that Board decisions
must be by unanimous vote and be recorded. Recording Board votes is
essential to proper record-keeping for the program. However, based on
the comments submitted and in light of changes to other sections (such
as the adoption of the process for notifications under Sec. 400.37),
we have deleted the provision stating that Board decisions in
proceedings will take the form of Board Orders.

Comment: One commenter stated that the authority to fulfill the
Assistant Secretary for Import Administration's responsibilities when
that position is vacant should be clarified.

Board position: The authority to carry out actions for the
Assistant Secretary for Import Administration is not a matter of Board
policy, but rather of delegation carried out within the Department of
Commerce. That delegation could be subject to change over time, and is
not an appropriate matter for delineation within the FTZ Board's
regulations.

Board position: We have not adopted the specific suggested
revisions which, in our view, would not improve the clarity or
effectiveness of the regulations. However, the Board has given a
relatively narrow authority to the Executive Secretary to allow
production activity to occur on an interim basis in certain
circumstances (see Sec. 400.37(d)).

Comment: One commenter proposed defining a process and timeline for
issuance of forms and other documents pertaining to the submission of
applications.

Board position: As noted in response to a comment on Sec. 400.21,
in these regulations, the Board has allowed an application format to
remain in use for a period of one year after it has been superseded by
a revised format. That period provides zone users with significantly
more time to adapt than the 30-day period proposed by the commenter.
Further, as originally proposed, any revised application format would
be published in the Federal Register. That requirement should provide
the written notice sought by the commenter.

Comments: Numerous commenters proposed changing the order of this
section's two subsections, as well as changing one word within one
subsection. One commenter suggested adding a word to clarify that the
section would only apply to ``zone'' operations in a zone.

Board position: We have reordered the content of the subsections,
added the word ``zone'' as proposed, and combined the subsections.

Comment: Numerous commenters proposed adding a section explaining
the CBP port director's role as the Board's representative, including
timeframes for the port director's response to a request from the Board
and for activation of a zone operation that the Board has expedited for
public policy reasons. Those commenters also proposed revising the
definition in these regulations of the term ``port director.''

Board position: We have adopted the commenters' proposal for a
separate section specifically concerning CBP's role as the Board's
representative. This section substantively parallels and replaces the
content of the sentence in Sec. 400.41 of the proposed regulations
pertaining to the role of the CBP port director. We have revised the
language proposed by the commenters for this section (and made
adjustments to other sections which had references to the port
director) to reflect the fact that the specific official within CBP
with responsibility for a particular matter may vary over time for CBP
operational reasons. Therefore, we have adopted language making a
general reference to CBP, and we have eliminated from these regulations
a definition of port director. We have not incorporated into the
section commenters' proposed timeframes. Timeframes for responses to
requests for FTZ authority are already addressed in the application-
specific sections of the regulations. Details of the activation process
are addressed by the customs regulations, and therefore are not
appropriate for inclusion in the FTZ Board's regulations.

Comment: Numerous commenters proposed changing the word ``ability''
to ``authority'' in the title of Subpart B.

Board position: We have not adopted the proposed change. Subpart B
addresses matters pertaining to whether parties are able to apply to
establish a zone or subzone. Therefore, the word ``ability'' is
appropriate for the title.

Comment: Numerous commenters proposed that adjacency-related
measurements be conducted by the grantee or zone participant with the
concurrence of the CBP port director.

Board position: Based on the comments received, we have modified
the language of this section to allow the CBP official with oversight
authority to concur on a measurement of adjacency.

Comments: One commenter suggested eliminating the distinct concept
of subzone and allowing the adjacency standard specifically proposed
for subzones to be applied to any zone site. Another commenter proposed
eliminating the term ``subzone,'' and treating authority for production
activity as a distinct matter from designation of a site. In response
to a comment submitted, one commenter objected to the idea of
eliminating the subzone concept, because of potential CBP operational
advantages for subzones and the dependence of a number of grantees on
the subzone mechanism so long as those grantees remain under the
traditional site framework. One commenter stated that both subzones and
ASF usage-driven sites should be treated equally in a manner that
minimizes burden and facilitates administration of the facilities in
question.

Board position: The Board received several comments pertaining to
various sections of the regulations indicating that current
distinctions between types of zone sites may not constitute the most
efficient and effective mechanism for facilitating zone use. Given
those considerations and the importance of adopting the least
burdensome mechanism to accomplish the Board's regulatory objectives,
the Board plans to simplify the parallel site-designation frameworks in
a subsequent rule. Further, recognizing the overall functional
equivalence between subzones and ASF usage-driven sites, and the
importance of enabling zone users to maximize operational efficiencies,
we have changed the minor modification provision (Sec. 400.24(c)) so
that an existing or potential usage-driven site could be designated as
a subzone if such designation would better meet the needs of the zone
grantee and zone participant(s).

Comment: Numerous commenters proposed modifying the standard for
applications to be ``not inconsistent'' with the applicant's charter or
organizational papers rather than ``consistent.''

Board position: We have made the proposed change to state that
applications must be ``not inconsistent'' with the charter or
organizational papers. This language reflects the reality that many
grantees' charters or organizational papers provide for broad powers; a
requirement to demonstrate consistency would be excessively burdensome
in that context.

Comments: Numerous commenters proposed the following revisions to
this section: changing the order of certain subsections; removing the
concurrence of the CBP port director from the subsection pertaining to
erection of buildings; applying the five-year lapse provision on a
site-specific basis; requiring expedited review of any application to
reestablish designation at a lapsed zone; stating that private
ownership is allowed of a zone ``site'' rather than zone ``land;''
adding evidentiary standards for Board actions to prohibit or restrict
activity; and adding a paragraph allowing certain activities to take
place at an operator's site under the operator's responsibility. One
commenter stated that the five-year lapse provision does not take into
account the three-year ``sunset lapse'' for usage-driven sites
designated under the ASF.

Board position: Based on comments received, we have reordered
certain of the subsections and modified the reference to the CBP port
director to clarify that concurrence only applies to activated zone
space. We have not adopted the proposal to expedite reviews of
applications to reestablish FTZ designation at lapsed zones because it
is appropriate for the Board to evaluate the individual circumstances
prior to determining whether to give priority to a particular
application to reestablish a zone that has lapsed. However, we have
added a specific reference to Board Order 849, which addresses
conditions for ``reinstatement'' of FTZ authority. We have made minor
language changes pertaining to the procedures and the standards for
Board actions to prohibit or restrict activity, including to reflect
the revised approach to production authority adopted in Sec.
400.14(a). However, we have not accepted most of the proposed changes
because the statutory authority is broad and the proposed language
could inappropriately preclude the Board from addressing future
situations in circumstances that no one can currently foresee.

We have not accepted the proposed substitution of the word ``site''
for the word ``land,'' because we want to emphasize that no one may own
the FTZ designation associated with a particular parcel of land. The
FTZ Act states that zone designation is a privilege that the Board
authorizes. The Board's authorization of designation for a piece of
land, therefore, belongs to no one. The regulatory provision at issue
simply clarifies that FTZ designation may be authorized for privately
owned land under certain conditions.

The Board plans in a subsequent rule to simplify the lapse
provision, which commenters proposed be applied on a site-specific
basis, and that one commenter claims fails to take into account the
three-year ``sunset lapse'' for usage-driven sites under the ASF. This
simplification is expected to encompass questions of lapse and sunset
provisions. Until we issue a final rule on that issue, the lapse
provision will continue to apply as it has since its institution in
1991 to a zone (or individual subzone) based on activation. The lapse
provision that applies to an overall zone (or individual subzone) on a
one-time basis is distinct from the ``sunset'' time limits that the
Board has commonly imposed via Board Order as a site-specific condition
on approval of new sites of a zone. A sunset limit automatically
removes zone designation from a site at the end of the sunset period if
the site has not been used for zone activity during the period.

Finally, for activity that does not require specific Board
authorization, questions of whether the activity may be conducted at an
operator's site under the operator's responsibility fall within the
jurisdiction of CBP. Therefore, a provision pertaining to such activity
would not be relevant for inclusion in the Board's regulations.

Comment: One commenter stated that under the Board's authority to
review zone activity and prohibit or restrict activity found not to be
in the public interest, an existing zone operation previously approved
by the Board would be at risk of losing its authority.

Board position: Inherent in the Board's ability to review and
restrict or prohibit ongoing FTZ activity is the possibility that an
existing zone operation approved by the Board could lose its authority.
Given that it is impossible to foresee every type of circumstance at
the time that the Board evaluates an application, it could be necessary
at some later point in time for the Board to restrict or prohibit the
activity in question. However, such circumstances have been extremely
rare in the history of the FTZ program. Further, based on comments
received on other sections of the proposed regulations, we have
incorporated in certain sections of the regulations additional language
designed to appropriately balance the interests of zone users and of
parties that might be concerned about negative impacts from certain
zone uses.

Comments: We received a broader range of comments on this section
than on any other. Commenters were concerned with numerous aspects of
the production-related provisions and, as discussed below, we have
significantly modified this section based on their comments. Although
the comments are numerous and diverse, we summarize them all here
because they are all related to Sec. 400.14.

Numerous commenters proposed a major overhaul of this section to
require FTZ users apply for and the Board issue on an expedited basis
approvals for production activity. Those commenters stated that
applicants' and FTZ users' uncertainties should be minimized, and that
advance approvals are necessary in most cases because use of zone
procedures requires significant upfront investment. They proposed
requiring that a Board Order approving production activity for export
be issued within 30 days of the submission of an application, and that
the Board Order be published within 15 days after issuance. Those
commenters also proposed the following changes: authorizing the
Executive Secretary to approve certain other production-related
benefits on an interim basis pending Board action; eliminating the
Board's proposed provision for production changes; and delegating
authority to the Executive Secretary to approve production activity
when (1) the applicant demonstrates the activity could be conducted
under CBP bonded procedures, (2) the sole benefit is for scrap/waste,
or (3) the activity is the same in terms of intermediate/finished
products as activity recently approved by the Board and similar in
circumstances. One commenter supported authorizing the use of any
components needed to make the intermediate or finished products
approved by the Board unless certain categories of components are
excluded by the Board, with the Board listing excluded components on
its Web site for compliance by all operators/users. One commenter
supported the proposed regulations' approaches to advance approval
requirements and authority to review and restrict activity.

Numerous commenters suggested shifting the proposed delegation of
authority for certain approvals from the Assistant Secretary for Import
Administration to the Executive Secretary, as well as adding a
provision largely paralleling prior Sec. 400.32(b)(1)(i), which
pertained to activity that is the same as activity recently approved by
the Board. Three commenters indicated that, for interim approval of
production authority, it is not necessary to have the CBP port director
concur since the port director's approval would be required for
activation of the operation in question. One commenter specifically
supported the interim authority provision as proposed. One commenter
stated that companies will not make decisions to invest in production
activity based on temporary or interim approvals from the Board, so the
Board should shorten its docketing and review times for applications.

One commenter stated that the production-change provisions in
proposed Sec. Sec. 400.14 and 400.37 seem unnecessarily complicated
and difficult to administer. That commenter proposed simply allowing
FTZ users to notify the Board of any component not subject to an AD/CVD
or Section 337 order, and that deadlines should be the same for
notifications of production
changes and capacity increases. Numerous commenters proposed
eliminating the proposed procedures for notifications and adopting a
different approach to authority for production activity focused on
intermediate and finished products (rather than specifying inputs to be
used in production activity). Those commenters state that Sec. 400.37
as proposed would create a significant new burden both initially and
quarterly. One commenter indicated that the proposed notification
provision would be unmanageable and proposed that the Board focus
production authority on end products. For any required notifications of
a new input, the commenter proposed a de minimis standard tied to FTZ
savings associated with the new input, with changes below the de
minimis threshold reported to the Board in the zone's annual report.
One commenter stated that the requirement for prior approval of a 4-
digit HTSUS list for use of the notification provision is not
practical, and that the public comment period following any
notifications would allow for adequate oversight. The commenter also
expressed concern that the retrospective nature of the notifications
would create uncertainty for FTZ manufacturers, given that there would
be a real potential for denial of the FTZ benefits, and a possibility
that duties would be applied retroactively. One commenter requested
clarification of the meaning of ``production change,'' and proposed
shifting reporting from a quarterly basis to an annual basis. Several
commenters stated that the requirements for the proposed annual
reporting of production activity should be clarified and take into
account that companies do not necessarily track foreign-sourced
components that are in domestic (duty-paid) status.

Three commenters stated that requiring what they characterized as a
one-time re-filing of a manufacturer's scope of authority, and then
quarterly reports thereafter, is excessively burdensome for users,
especially because failing to re-file the scope would potentially
subject users to fines. One commenter claimed that the proposed
notification procedure for production changes would result in
temporary/interim authorization, and that the procedure could only be
used after the completion of a process that would subject all of the
operation's current activity to new public review and comment. One
commenter stated that quarterly filings would add to workload and the
retrospective nature of notifications would create uncertainty for
users. The same commenter stated that, in the context of quarterly
retrospective filings, the Board should only deny FTZ benefits
prospectively. Another commenter stated that what it characterized as
quarterly reports should not be required. As an alternative to
quarterly retrospective reporting, one commenter proposed a provision
similar to the prospective notification provision in the original Sec.
400.28(a)(3), but expanded to allow for new finished products. One
commenter also proposed a notification procedure for all activity not
requiring advance approval, with the Board issuing written confirmation
of each notification. Another commenter stated that if a Board Order is
not possible for export authority, the Board should increase certainty
for users and for CBP by allowing a standardized submission from the
company to the Board, and for a standard response from the Executive
Secretary. One commenter stated that companies must be able to obtain
written confirmation of authority from the Board for CBP and other
purposes.

One commenter requested clarification whether advance approval is
required for all production activity and, in the context of production
activity already authorized by the Board, for new inputs used to
produce an approved product, for new part numbers associated with a
component under an approved HTSUS category, and for new inputs under
HTSUS categories not already approved but used to produce an approved
product. Several commenters stated that reliance on HTSUS numbers to
track which components are authorized for a production operation is too
burdensome or impractical. One commenter stated that even the use of 6-
digit HTSUS categories is impractical. Another commenter proposed that
the Board provide public access to a database of components and
finished products for approved production operations.

Numerous commenters proposed eliminating the Board's proposed
provision concerning capacity increases and eliminating capacity as an
element of production authority. One commenter proposed that, if
capacity cannot be eliminated as a constraint on ongoing production
activity, the Board should adopt an annual reporting requirement for
capacity increased beyond a specific threshold. Another commenter
proposed that capacity be reported to the Board annually. One commenter
proposed including a clear statement that production only for export
would generally not require application to and authorization by the
Board. One commenter proposed including a provision concerning the
Board's temporary/interim manufacturing (T/IM) procedure.

One commenter proposed that foreign components subject to AD/CVD
orders be exempt from the requirement for advance approval when they
are used in production for export, maintaining that to do otherwise
would run contrary to what the commenter claimed is longstanding Board
policy that admission to zones of merchandise subject to AD/CVD orders
is non-controversial. The commenter further stated that the Board's
proposed approach for production activity involving a component subject
to an AD/CVD order will significantly complicate the Board's
proceedings, requiring more extensive factual records and decision
documents, create additional burden for the Board, and substantially
increase complexity and costs for zone users. One commenter stated that
the Board should not require new approval due to changes in the HTSUS
or due to imposition of an AD/CVD order on a component already approved
by the Board. One commenter also questioned the practicality of
requiring further Board approval when an AD/CVD order is imposed on a
component already approved by the Board, and suggested that quarterly
retrospective notifications may be adequate in such circumstances.

One commenter stated that because merchandise subject to an AD/CVD
order must be admitted to a zone in privileged-foreign status,
requiring an approval process for ongoing production involving such
merchandise adds no benefit and is excessively burdensome. Another
commenter stated that the Board's prior regulations adequately provided
for approval and ongoing oversight of changes in AD/CVD status of
components already authorized or changes in duty rates and capacity,
and that the proposed regulations could result in duplicative public
comment processes and evaluating activity already approved by the
Board. One commenter stated that the prior regulations' requirement for
election of privileged-foreign status on admission of merchandise
subject to AD/CVD orders reflected an appropriate balance of avoiding
circumvention of AD/CVD orders while enabling export-oriented activity
to take place in FTZs. Another commenter stated that the privileged
foreign-status requirement for merchandise subject to AD/CVD orders
should be adequate to address potential concerns pertaining to ongoing
activity, and proposed a blanket Board Order authorizing any production
for export provided the components are placed in
privileged-foreign status prior to the production activity.

Several commenters supported the proposed requirement for advance
approval from the Board for any new production activity involving a
component subject to an AD/CVD order. Those commenters also supported
the proposed requirement that a production operation with existing
authority obtain additional approval from the Board to use any
component subject to an AD/CVD order that was not in effect at the time
of the Board's prior authorization action. One commenter proposed that
the requirement for additional approval from the Board be extended to a
component (1) not identified at all--or not identified as being subject
to an AD/CVD order--in the production operation's original application;
or (2) identified but not sourced from a country subject to an AD/CVD
order at the time of the application, and that will now be sourced from
a country subject to an AD/CVD order. Several commenters also proposed
requiring reporting and related procedures to ensure notice to affected
parties. Certain commenters further proposed modifying practices to
ensure compliance with authority approved by the Board. One commenter
proposed requiring applicants for production authority involving a
component subject to an AD/CVD order to demonstrate that the authority
would not adversely affect the AD/CVD relief in place.

One commenter stated that provisions requiring further approval
from the Board if a component already used by a zone manufacturing
operation becomes subject to a new or increased rate of duty, a new AD/
CVD order, or a new order of the International Trade Commission
pursuant to 19 U.S.C. 1337 (section 337), would be disruptive to
current zone operations, and that there should be a transition rule.
Another commenter indicated that notification should not be required as
envisioned in Sec. 400.14(a)(4) for new AD/CVD or Section 337 orders
and that, if necessary, zones' annual reports could be used to report
the information in question. One commenter stated that the absence of
an advance approval process for production activity would mean the
Board might be unaware of merchandise subject to certain Department of
Agriculture requirements and be unable to alert the grantee or operator
to those requirements.

In response to other comments submitted, one commenter supported
only requiring advance approval for production activity involving
inverted tariffs. That commenter also supported the provision for
advance approval of a broad list of categories to enable future
notifications, but opposed other commenters' proposals to modify the
application process to focus purely on intermediate and finished
products. One commenter stated that a proposal from other commenters
requiring the Board to issue an Order approving export activity within
30 days of receiving an application should not apply to activity
involving a component subject to an AD/CVD order. That commenter stated
that the Board has recognized that such activity may raise public-
interest concerns and that the proposed 30-day process would eliminate
all of the procedural safeguards in the proposed regulations. The
commenter opposed another commenter's proposal that no advance approval
be required for production for export involving a component subject to
an AD/CVD order, stating that the change would negate the Board's
ability to evaluate whether such activity would undermine trade relief
measures in effect. That commenter also disagreed with another
commenter's claim that the Board's proposed approach for production
activity involving a component subject to AD/CVD order will
significantly complicate proceedings, create additional burden for the
Board and increase complexity and costs for zone users.

In response to other comments submitted, multiple commenters
supported the requirement for advance approval for any production
activity involving a component subject to an AD/CVD order, with one of
those commenters supporting such a requirement when a component
previously authorized for a zone production operation becomes newly
subject to an AD/CVD order. One commenter stated that concerns
expressed by only a few commenters should not lead the Board to adopt
unduly burdensome processes for applications and management of ongoing
operations. The commenter stated that the proposed processes would be
detrimental to many program users, discourage overall FTZ use,
discourage domestic manufacturing for both the U.S. and export markets,
and also create significant burden for the Board's staff. One commenter
stated that there is no reason to impose additional conditions or
restrictions on the use in production of material subject to AD/CVD
orders beyond those already proposed by the Board. That commenter cited
Executive Order 13563 as instructing agencies to achieve policy goals
through the least burdensome means.

One commenter opposed the proposal from other commenters requiring
advance approval for production involving a component subject to an AD/
CVD order, and stated that the requirement for the election of
privileged-foreign status at the time merchandise is admitted to a zone
is adequate to ensure that AD/CVD duties are not circumvented. One
commenter opposed any requirement for company-specific advance approval
of production for export. That commenter also recommended the Board
retain what the commenter claimed was the prior regulations'
presumption that production for export is in the public interest.

Board position: After considering all comments submitted and the
importance of adopting the least burdensome mechanisms to accomplish
the Board's policy objectives, we have modified this section (with
related changes in other sections, including Sec. Sec. 400.22 and
400.37) to implement a revised approach to authorizing production
activity. The foundation for the revised approach is a simple
notification process in advance of any new production activity
(including use of new materials/components at a previously approved
production operation). This approach also incorporates a more extensive
application process for circumstances where the Board reviews a
notification and determines that further review is warranted.

Among other considerations, the revised procedures balance the need
expressed by many commenters for generally shorter timeframes for
action on requests for production authority and the perspective
emphasized by other commenters that potentially affected parties must
be able to provide comments to the Board regarding the impact of
proposed production activity. Although the FTZ Act does not require
companies to obtain approval prior to conducting production
(manufacturing) activity in zones, the Act authorizes the Board to
prohibit activity that ``in its judgment is detrimental to the public
interest, health, or safety'' (19 U.S.C. 81o(c)). Since 1972, the Board
has required either notification or application in advance of the
conduct of manufacturing activity (this type of requirement was first
implemented through conditions of individual Board Orders and then
adopted in the Board's 1991 regulations). The revised approach
continues to require zone users to obtain approval in advance from the
Board before conducting manufacturing activity. Consistent with the
many comments submitted regarding the need for simplified, expedited
processes, our revised approach generally reduces both
the burden associated with a company's standard submission to the Board
requesting authorization to conduct production activity and the
standard timeframe for processing that request. This rule's simple
notification process is akin to that suggested in certain comments, and
incorporates a standard 120-day timeframe for the Board to process
notifications received. That timeframe cuts by two-thirds the one-year
standard timeframe in both the prior regulations and the proposed
regulations to process applications for manufacturing (production)
authority. This revision also significantly reduces the information
burden associated with authorizing production activity. As noted above,
these regulations also include a detailed application process for cases
that are determined to warrant further review as a result of the
initial notification. Further, unlike the application process suggested
by many commenters for certain categories of production activity, all
notifications for production authority would be subject to a public
comment period before any potential Board action to authorize the
activity. Allowing public comments on all proposed production activity
is the cornerstone of procedures designed to ensure that production
activity conducted in FTZs is in the public interest. Recognizing the
time-sensitive nature of some requests for authority to conduct
production activity, we have also adopted a provision enabling
authorization on an interim basis until the Board is able to complete
its processing of a notification. Unlike the Board's prior process for
giving temporary/interim manufacturing (T/IM) authority, the new
provision is not constrained by a requirement that activity meet a
specific standard for similarity to previous applications; the adopted
provision therefore should be more flexible and more useful than the T/
IM procedure.

The procedures adopted in this section are designed to simplify and
increase certainty of the procedures for approving production
authority. The prospective nature of the notification process--in
contrast to the retrospective process delineated in the proposed
regulations--enables the Board to eliminate the proposed requirement
for advance approval of a list of 4-digit HTSUS headings within which
future notifications would be made. In addition, the basic notification
process for all production activity should generally enable zone users
to obtain a formal decision on authorization of the activity within 120
days of requesting it, thereby accelerating certainty in order to
better meet the needs of zone users. We have not made provision for
extensions of comment periods on notifications because the review
procedures are designed to allow the Board to determine within the 120-
day timeframe which notifications warrant further review. (Further
review requires submission of a detailed application and then a period
for public comment on the application, which is subject to requests for
extensions.) Therefore, if concerns about notifications arise--
including as a result of comment submissions explaining why additional
time is needed for public comment or for affected parties to assess the
impact of proposed activity--the Board would be able to conduct further
review and trigger the more extensive requirements for such a review.

By requiring FTZ users to provide us with information through the
notification process, we can eliminate the reporting requirement we
proposed in this section (although production activity will remain
subject to the general requirements of Sec. 400.51). The requirement
for prospective notifications and the associated publication of a
Federal Register notice for each notification also effectively
addresses the concern raised by one commenter that eliminating public
notice could lead to compliance problems pertaining to certain
Department of Agriculture requirements. Finally, it should be noted
that the adopted procedures create no new requirements for activity
approved under the prior regulations (i.e., approved activity that was
the subject of prior applications and notifications remains authorized,
as limited by any restrictions associated with the specific proceedings
in question).

We have also added a subsection (Sec. 400.14(c)) mandating that
information regarding authorized production operations be made
available on the Board's Web site. This provision will enhance the
transparency of the FTZ program and enable parties to assess whether
changed circumstances exist that would warrant review by the FTZ Board
under Sec. 400.49(a). Requiring advance approval from the FTZ Board
for authority to continue activity whenever certain circumstances have
changed (such as proposed Sec. Sec. 400.14(a)(4)(i)-(iii)) is not the
least burdensome means for the Board to accomplish its policy
objectives of enhancing U.S. competitiveness through the availability
of zone procedures, while ensuring that zone activity remains in the
public interest. With regard to materials or components subject to AD/
CVD orders or proceedings, these regulations provide no special
application-related procedures. We have determined that the standard
procedures applicable to any material/component for which authorization
is requested will allow the Board to address concerns about negative
impacts from the proposed activity. Therefore, we have adopted neither
(1) the approaches proposed by certain commenters to eliminate any
advance approval process for export-oriented activity involving
materials/components subject to AD/CVD orders/proceedings, or to make a
presumption in favor of authorizing such activity, nor (2) provisions
proposed by certain commenters to create new carve-outs from the
general framework for production authority, with additional procedural
burdens imposed with respect to those carve-outs. Under the new rule,
materials/components cannot be used in a zone production operation
without specific prior authorization through the notification process
(and subsequent application process, where warranted), including
publication of a notice in the Federal Register and invitation for
public comment. The adopted procedure substantively parallels the
requirements of the Board's prior regulations, which did not permit any
manufacturing activity without Board approval. The Board's prior
regulations also contained a standard provision for a public comment
period on applications requesting manufacturing authority, so that the
Board could evaluate the comments of potentially affected parties in
determining whether to approve a given application. Practice has shown
those types of requirements to be adequate to enable the Board to
determine whether negative impacts would result from proposed zone
activity.

Comments: Numerous commenters proposed focusing the scope of
authority for a production operation on intermediate and finished
products rather than the components used in the operation, with any
component used to make an authorized intermediate or finished product
considered within the scope of approved authority. One commenter
proposed clarifying that this provision's reference to inputs is
limited to imported inputs. One commenter stated that the Board should
not use HTSUS numbers to define a production operation's scope of
authority because HTSUS numbers are subject to change beyond the
company's control, with such changes potentially leading to non-
compliance with approved scope and
requiring further FTZ Board processes to rectify. Two commenters
expressed concerns about other commenters' proposals to focus
applications for production authority on intermediate and finished
products without specifying the components to be used in such
production, stating that the change would defeat the purpose and
undermine the effectiveness of the advance approval requirement.

Board position: We have not adopted commenters' proposal to define
a zone user's authorized scope for production activity based on
intermediate and finished products, with no delineation of the
materials or components to be used in producing the intermediate or
finished products. We agree with the commenters that stated that this
change would defeat the purpose and undermine the effectiveness of the
advance approval requirement. As a general matter, the potential impact
of proposed production activity on U.S. producers of materials or
components is tied to the identities of the specific foreign-status
materials/components that would receive the benefits of zone use.
Identifying only the intermediate or finished products would not allow
affected parties or the Board to assess the impact of the proposed zone
activity, because the component or input materials would be unknown.

Based on comments received, we have clarified that this section
only applies to imported materials or components admitted in foreign
status for a production operation in a zone. With regard to the use of
HTSUS numbers to define scope of authority, these regulations focus
scope of authority first on the written descriptions of the materials,
components and finished products, with HTSUS numbers primarily serving
to supplement the written descriptions. This approach continues the
Board's existing practice and reflects our recognition of the practical
difficulties that shifting to an HTSUS-driven approach would create for
zone users.

Based on the comments submitted, we have eliminated the provision
on notification of increases in production capacity (as well as
inclusion of production capacity as a standard element of scope of
authority). Since 1991, FTZ users have had to obtain the Board's prior
authorization to manufacture beyond the level of capacity already
approved by the Board for the operation in question. However, in the
twenty years that the requirement has been in effect, actual increases
in capacity have not proven to be controversial or to result in
negative impacts. Consequently, there is no justification for requiring
companies ordinarily to provide a capacity level to the Board for
authorization, and then requiring additional authorization for
subsequent activity at higher capacity levels. If zone activity
ultimately raises public interest concerns, the Board retains the
ability to conduct reviews pursuant to Sec. 400.49.
Section 400.14(e)--Restrictions on Items Subject to Antidumping and
Countervailing Duty Actions

Comments: Numerous commenters proposed adding a requirement that
the Board approve production activity for exports of products
incorporating components subject to antidumping duty or countervailing
duty (AD/CVD) orders whenever it finds that there would be a positive
impact on U.S. competitiveness, and that similar activities are
authorized in other countries. Two commenters stated that the
additional language proposed for this section by certain commenters
would undercut the Board's policy of preventing the use of zones to
circumvent AD/CVD orders and negate the standards the Board applies in
determining whether proposed zone activity is in the public interest.

Board position: We have not adopted the suggested additional
language for this section, which could result in applications involving
components that are subject to AD/CVD orders benefiting from an
evaluative standard more favorable than the standards applied to all
other types of cases involving production activity. The proponents of
that approach have not presented a substantive justification for giving
preferential treatment to activity involving components subject to AD/
CVD duties.

Comments: Numerous commenters proposed modifying this section to
apply to all zone activity (rather than only production activity) for
reasons of the Congressional intent claimed by the commenters. One
commenter stated that such a modification would result in all zone
operators being treated uniformly. Numerous commenters proposed adding
a subsection providing for expedited temporary approvals of zone
designation to enable use of the production equipment benefit (with
zone designation to be terminated once entry is made on the production
equipment). One commenter supported the proposed provision as
published.

Board position: We have not adopted the changes proposed in these
comments. In September 2010, the Executive Secretary examined the
applicability of the production equipment provision in depth, and
issued a memorandum to FTZ grantees detailing the analysis and
findings. The memo has been available on the Board's Web site since its
issuance. No arguments have been presented to alter the memorandum's
fundamental findings that the clearest indications based on the record
associated with the passage of the statutory provision are that
Congress intended the provision to apply to equipment used in
production (as the term is commonly understood) in zones. Further, the
proposed provision to allow expedited temporary zone designations to
enable use of the production equipment provision appears to envision
obtaining FTZ benefits on the assembly of equipment that will then be
used for non-zone activity. Our position is that the statutory
provision is intended to provide benefits solely on equipment that will
be used in zone activity.

Comments: Numerous commenters proposed revising this provision to
simply repeat the statutory provision. Two commenters suggested
reviewing this provision based on a concern that the meaning could be
more restrictive than the statutory provision, and potentially confuse
affected parties. Two commenters proposed specific revised language for
this section to clearly harmonize its meaning with Sec. 400.1(c) of
the prior regulations and eliminate any confusion.

Board position: Given the concerns raised in comments, we have
modified this section to use the statutory language verbatim.

Comments: Numerous commenters proposed changes that: characterize
the section as applying only to the establishment of new general-
purpose zones; indicate that applications will conform to instructions
and guidelines set out in the regulations; require application letters
and resolutions to be dated no more than six months prior to submission
of the application; remove language specific to explanation of the
degree to which a proposed site duplicates types of facilities at other
sites, to environmentally sensitive areas, and to encouraging
submission of draft applications; and add certain language pertaining
to the ASF. Several commenters stated that the ASF should be detailed
in the regulations. One commenter stated that the requirements
and distinctions of the ASF relative to the traditional site framework
should be delineated in the regulations and that both frameworks should
be maintained. One commenter agreed that applications should comply
with instructions and related documents published in the Federal
Register and made available on the Board's Web site, but suggested
requiring a 30-day minimum written notice before implementing such
changes in cases where notice in the Federal Register is not warranted.
One commenter stated that full information about the ASF should be
included in the regulations, that application processes should be
defined, and that there should be some control on the web-based
application guidelines developed by the Board.

Board position: This section establishes general requirements for
applications to the Board, with variations specific to certain types of
authority described in subsequent sections. Based on the comments
received, we have made several changes to this section. In reference to
the dating of the application letter and the resolution, we replaced
the words ``currently'' or ``current'' with language allowing for the
documents to be dated up to six months prior to submission of the
application.

We have also added basic references to key concepts under the ASF
in recognition of the certainty that grantees and program users seek as
they consider or use the ASF. However, given that the ASF had only
recently become part of the Board's practice at the time that the
proposed regulations were drafted, no attempt was made to incorporate
the details of the ASF in the proposal. Comments have not only proposed
that the regulations include details of the ASF and contrast the ASF
with the traditional site framework (TSF), but have also proposed
simplifying the parallel ASF and TSF approaches within the Board's
practice. As noted in response to comments on Sec. 400.11, recognizing
that codifying the intricacies of current practice in regulations may
not be the least burdensome means to accomplish the Board's policy
goals, the Board plans to propose simplifying the site-designation
frameworks in a subsequent rule. We have retained the proposed approach
of having the Executive Secretary develop formats for individual types
of applications based on the regulations' requirements. This provision
is specifically designed to enable us to adopt user-friendly question-
and-answer formats while also allowing occasional adjustments to those
formats if certain questions prove unsuccessful in eliciting the needed
information from applicants. Recognizing potential concerns about
transparency and parties' need to ensure that a particular application
format will be accepted by the Board, the provision also stated that
application formats will be published both in the Federal Register and
on the Board's Web site. The provision for publication in the Federal
Register was specifically designed to maximize transparency. However,
based on one comment noted above, and to ensure that changes in formats
do not impose undue burdens on applicants, we have specifically stated
that the Board will continue to accept applications for a period of one
year after a given format has been superseded; this is a significantly
longer period than the 30 days suggested by a commenter, and should
provide zone users with ample time to adapt to any format revision. We
also have not made suggested changes that would have further burdened
applicants by adding elements to the requirements for application
letters or application contents. Finally, we have not followed
suggestions that we remove language specific to explanations of the
extent to which facilities at a proposed site duplicate the types of
facilities at other sites, to environmentally sensitive areas, and to
encouraging submission of draft applications. Except for sites designed
to serve specific, existing tenants, any proposal to add a new site to
a zone should include a justification of the need for the site when
there are already sites authorized for the zone. There are a
significant number of entirely unused FTZ sites nationwide. Such sites
appear to constitute a large majority of all FTZ sites. Given that each
such site was approved by the FTZ Board based on information from the
grantee that the site was needed to serve trade-related needs, it is
entirely appropriate for the FTZ Board to require that a proposal for a
new site explain the services or amenities to be provided by the new
site that are not provided by the grantee's existing sites. Separately,
given the commercial and industrial uses that FTZs serve, there appears
to be no need to make allowance for the inclusion of environmentally
sensitive areas within designated FTZs. Finally, submitting a draft
application can be a useful tool for any organization that is preparing
an application, and it is appropriate for the regulations to provide
for that tool.

Comments: Numerous commenters proposed establishing a stand-alone
section concerning applications for production authority. Those
commenters proposed replacing most of the proposed Sec. 400.22 with
the Board's current application format for establishing manufacturing
subzones and for obtaining manufacturing authority for existing zone
space. Addressing the requirement in proposed Sec. 400.22 for certain
information regarding products or materials/components, one commenter
proposed that zone users be allowed to notify the Board of the HTSUS
chapters within which new products or components fall. For any
application for production authority involving a component subject to
an AD/CVD order, one commenter supported requiring that the application
state that the proposed authority involves a component subject to an
AD/CVD order. That commenter also proposed requiring that the applicant
demonstrate that its requested authority would not reduce the
effectiveness of the AD/CVD remedy.

Board position: In response to comments received, we have created
new Sec. Sec. 400.22 and 400.23 specifically setting forth
requirements for notifications and applications for production
authority (distinct from requirements for subzone applications in Sec.
400.25, which only pertain to approving FTZ designation for a specific
location without addressing the separate matter of production
authority). As with Sec. 400.25, we have not incorporated in this
section questions from the current application format for manufacturing
subzones, in part for the reasons noted in our response to comments on
Sec. Sec. 400.21 and 400.25. We have not adopted the proposed change
to notifications of new products or components because comments
submitted have led us to adopt a revised approach to the application
process for production authority. Finally, for both notifications and
applications for production authority under revised Sec. 400.14, we
have maintained the requirement that the applicant state whether any
component is subject to an AD/CVD order. We have not adopted the
proposed requirement that the applicant address whether its proposed
activity under FTZ procedures would reduce the effectiveness of the AD/
CVD remedy because that requirement would increase the burden on
applicants even in situations where the activity may not be of concern
to an AD/CVD petitioner. The Board would be able to assess the
potential impact on AD/CVD remedies if public comments in response to a
notification or application for production authority raise concerns
about proposed FTZ production activity.

Comment: Numerous commenters indicated that they proposed
significant changes to this section (which those commenters also
proposed renumbering to become Sec. 400.25); however, the proposed
text provided by those commenters was in fact identical to the text
proposed by the Board, with the sole exception of the deletion of the
original Federal Register citations for the Board's adoption of the
ASF. As noted above regarding Sec. 400.11, one commenter indicated
that there are potential CBP operational advantages for subzones
relative to usage-driven sites (which are most commonly designated
through a minor-modification process). One commenter stated that the
Board should clarify that there is no functional distinction between
subzones and usage-driven sites under the ASF. Another commenter stated
that both subzones and ASF usage-driven sites should be treated in an
equal manner that minimizes burden and facilitates administration of
the facilities in question.

Board position: We have retained the ASF-related Federal Register
citations because, as detailed in response to comments on Sec. 400.21,
we have not attempted to incorporate details of the ASF in these
regulations given the need that has emerged for the Board to simplify
the site-designation frameworks in a subsequent rule. However, as noted
in response to comments on Sec. 400.11, we have modified Sec.
400.24(c) to allow an actual or potential usage-driven site to be
designated as a subzone if such designation would better meet the needs
of the zone grantee and zone participants. The modification recognizes
the overall functional equivalence between subzones and ASF usage-
driven sites and the importance of enabling zone users to maximize
operational efficiencies. However, for the reasons described in
response to comments on Sec. 400.36, allowance for designation of a
usage-driven site as a subzone is contingent on the subzone's remaining
subject to the Board-established, zone-wide activation limit that
applied to the usage-driven site.

Comments: Numerous commenters suggested limiting proposed Sec.
400.22 to applications for subzones and establishing a separate section
for applications for production authority. Those commenters suggested
removing most of the language proposed by the Board and instead
incorporating language from the Board's current application format for
establishing manufacturing subzones and for obtaining manufacturing
authority for existing zone space. One commenter proposed simplifying
application requirements for subzones that would not be used for
production activity based on what that commenter characterized as a
dissimilar treatment under the proposed regulations for similar types
of operations in subzones versus general-purpose zone sites.

Board position: In response to comments submitted and in
recognition of the complete separation of production authority from
subzone designation under these regulations, we have limited this
section to subzone applications and have further simplified the
application requirements. We have also made minor changes in other
sections in order to implement this section properly. New Sec. Sec.
400.22 and 400.23 are specific to the separate requirements for
notifications and applications for production authority, as described
in our response to comments on Sec. 400.14. We have not incorporated
into this section questions from the current application format for
manufacturing subzones for the reasons noted in our response to
comments on Sec. 400.21, in part. A number of those questions pertain
only to applications involving manufacturing (production) activity and
therefore would be irrelevant to the many subzones that are used solely
for distribution-related activities. Finally, several of those
questions duplicate the requirements set forth in Sec. 400.21. We have
opted to include such requirements by reference rather than repeat the
language in full.

Comments: Numerous commenters proposed the following changes:
Eliminating reference to the port of entry area in proposed Sec.
400.24(a); eliminating reference to compatibility with a master plan or
economic development goals in proposed Sec. 400.24(d); modifying
proposed Sec. 400.24(e) to consider views of those materially affected
by FTZ benefits; and renumbering the section to become Sec. 400.26.
Those commenters also proposed replacing the separate criteria for
subzone proposals in proposed Sec. 400.25(b) with the criteria in
proposed Sec. 400.24, which would apply to both zone and subzone
proposals that do not involve production activity. One commenter
proposed modifying the criteria applicable to subzones (other than
proposals involving production) to focus on disapproval if the proposed
activity were not permissible under the FTZ Act, U.S. law, or a
specific Board Order. Two commenters recommended that the Board no
longer consider in evaluating subzone proposals whether the activity
could be accommodated in multi-purpose FTZ facilities serving the area.

Board position: Based on the comments received, we have eliminated
the separate criteria for evaluating subzone proposals (including
whether activity could be accommodated in multi-purpose FTZ facilities
serving the area). This change reflects a recognition that the types of
distribution activities conducted in non-production subzones are
indistinguishable from the types of activities that can be conducted in
general-purpose sites (separate criteria will apply to applications for
authority involving production activity). The separate criteria
proposed for evaluation of subzone proposals did not represent the
least burdensome means to accomplish the Board's policy objective of
facilitating FTZ use in order to maximize the creation and retention of
domestic economic activity and employment.

With regard to the specific text of proposed Sec. 400.24, we have
retained the reference to the port of entry area because the
establishment of a zone under the FTZ Act is tied to the proposed
zone's adjacency to a port of entry. We have also retained the
reference to compatibility with master plans or economic development
goals because it is relevant for the Board to consider the degree to
which a zone proposal is linked to, and consistent with, official
documents pertaining to a community's economic development planning. We
have adopted the substance of the proposed change to consider the views
of those ``materially affected'' rather than those merely ``affected''
by a proposal because the original, lower standard would potentially
impose a burden on applicants to respond to comments from any person
claiming to be affected by an application regardless of whether there
would be a material impact on that person. We have also made a minor
modification to the section's title to improve clarity.

Comments: Numerous commenters stated that proposed Sec. 400.25
(which they would renumber to become Sec. 400.24) should apply only to
production activity. Those commenters proposed requiring the Board to
consider companies' ability to conduct the same activity offshore, the
precedential effect of prior Board decisions, and the effect on the
U.S. economy, as well as revising the statement of Board policy to
include reference to promoting U.S. competitiveness. Those commenters
also proposed deleting a reference to ongoing activity in Sec.
400.25(a)(1) and deleting the word ``significant'' from Sec.
400.25(a)(3). One commenter stated that the Board should equalize
tariff treatment for U.S. manufacturing operations relative to offshore
alternatives, and should not give differential treatment to competitors
within an industry or else potential users may no longer view the FTZ
program as a viable option. That commenter also stated that U.S.-based
manufacturing and exports are inherently in the public interest and
should be treated as such, absent direct evidence of a net negative
economic effect.

Board position: In response to comments received, we have limited
this section to criteria for evaluating applications involving
production activity and have required the Board to take into account
companies' ability to conduct the same activity offshore and the effect
on the U.S. economy. We have also added references to analyses carried
out in connection with prior Board actions. We have not referred to the
precedential effect of prior Board actions because such language could,
inter alia, create a mistaken impression that the situation within a
given industry inherently remains static over time. We have not
modified the statement of Board policy to include a reference to
promoting U.S. competitiveness, because the focus of the section is
emphasizing that the Board's actions are consistent with broader trade-
related public policy. For similar reasons, we have retained the
statement that Board policy applies to ``ongoing'' activity in addition
to proposed activity. We also have not modified the requirement that an
application for production authority demonstrate a ``significant public
benefit.'' However, the significance of the public benefit may be
relative, depending on the size and employment level of the facility
involved, so this standard is not inherently discriminatory against
smaller facilities.

With regard to other comments received, the FTZ program can be used
to equalize tariff treatment relative to offshore alternatives.
However, obtaining authority for a given FTZ production use cannot be
guaranteed. Rather, the Board's function continues to be ensuring that
zone activity is in the public interest; assessing a range of factors
is appropriate in making that determination. As for differential
treatment for competitors in a given industry, the Board naturally
seeks to avoid such differential treatment. However, one factor that
some observers may fail to take into appropriate account is the
cumulative effect of FTZ applications from multiple participants in a
given industry, which could differ from the effect of an application
from a single participant. The Board must continue to base its
decisions on the facts and circumstances present at the time that a
given decision is made.

Finally, while the changes to the production-related sections of
these regulations should dramatically simplify and expedite the process
of obtaining Board authorization for production authority in most
cases, the regulations maintain appropriate procedures to ensure that
the activity conducted is in the public interest. The Board does not
need to shift presumptions about production activity for there to be an
appropriately simplified and expedited process, as noted above.

Comments: Numerous commenters proposed dividing this section into
three subsections (general, comments, and rebuttal), requiring
opponents of FTZ activity to demonstrate standing and submit evidence
that would meet a specific standard that closely resembles the standard
for applicants' responses to opponents' submissions, and eliminating
the word ``significant'' preceding ``public benefit.'' One commenter
stated that, for applications involving manufacturing or exports, the
burden of proof should be shifted to any opponents.

Board position: As a result of the comments received, we have
divided this section into four subsections: in general; comments on
applications; requests for extensions of comment periods; and,
responses to comments on applications. We have stated that parties
submitting comments on FTZ applications should submit evidence that
meets a standard closely resembling the standard for applicants'
responses to such submissions. However, we have not adopted the
suggested requirement that parties opposing FTZ applications
demonstrate standing. Although the suggested standing requirement
involved the addition of only a few words, the requirement could
significantly complicate the processing of FTZ applications, and would
appear to add more complexity and burden than can be justified based on
the procedural benefits it might bring. We also have retained the full
phrase ``significant public benefit'' to mirror the standard retained
in Sec. 400.27; that standard was addressed in response to comments on
that section. Finally, the definitive wording of this section reflects
a balancing of the standards applicable to both applicants and parties
submitting comments on applications. It would not be appropriate to
abandon that evenhanded approach for certain types of applications.

Comments: Numerous commenters proposed reducing standard timeframes
to require the Board ordinarily complete its action on applications
involving production authority within six months, and that Board action
on other applications ordinarily be completed within five months. Those
commenters also proposed the following changes: 30-day periods for
responses from zone participants contacted by the Executive Secretary,
and for the Executive Secretary to complete pre-docketing review after
receiving additional information from an applicant; and returning pre-
docketing applications to the applicant rather than discarding the
application if noted deficiencies have not been corrected within 30
days. In response to other comments, two commenters stated that the
suggestion to reduce timeframes for Board action was unreasonable.
Those commenters stated that the reduced timeframes would impede
potentially affected parties from receiving proper notice or having an
adequate opportunity to comment, and would also prevent the Board from
adequately developing a factual record, analyzing comments, and
performing a thorough analysis of the application in question.

Board position: Based on the comments received and recognizing the
need to provide expedited processing of requests, we have made a number
of changes to procedures and timeframes. As noted in comments on Sec.
400.14, we have adopted a revised approach to requests for authority to
conduct production activity that incorporates a
standard notification process designed to take no more than 120 days
(including a 40-day comment period). However, the revised approach also
retains the full application process delineated in the proposed
regulations, which would apply to any notification that is determined
to require further review, as set forth in Sec. 400.37. Given that
such applications will tend to involve complex or controversial
circumstances, we have retained in this section an ordinary 12-month
timeframe to process such applications.

Based on changes to the subzone application requirements in
response to comments received, we have also significantly modified the
procedures for processing subzone applications. Those modified
procedures are delineated in Sec. 400.35. Based on the inherently less
complex analysis associated with a single-user subzone proposal as
compared with proposals to establish or expand general-purpose zones,
Sec. 400.35 sets forth simplified procedures designed to facilitate
expedited processing of subzone applications. Expedited processing for
subzone applications, like notifications for production authority,
focuses on operations in existence or under construction that are or
will be engaged in international trade-related activities. Establishing
and reorganizing zones under the ASF similarly enables grantees to gain
quick, simple access to FTZ procedures for operations actually engaged
in such activities. In contrast, evidence indicates that other types of
applications tend to be more speculative with regard to actual zone
use. The procedures and timeframes contained in these regulations
prioritize resources toward actual trade-related operations in order to
maximize their positive competitiveness and employment impacts.

We have not made other changes to this section to reflect comments
received because the changes proposed would not improve the efficiency
of the overall application process. In particular, we have retained the
provision for discarding an application if corrections are not made
within the allotted timeframe, because it is appropriate to eliminate
the burden associated with returning applications as one element of
optimizing resource use towards rapid processing of docketed
applications.

Comments: Numerous commenters proposed changes which would: Provide
that untimely comments would not be considered; limit the number of
parties that may submit rebuttals; broaden references to the applicant
to include zone participants; limit the timeframe within which hearings
could be arranged to 60 days after the end of the initial comment
period on an application; and modify the timeframe for CBP's input on a
pending application. One commenter proposed a reduction in the standard
comment period for applications to either 15 days or 30 days, while
another commenter proposed eliminating the public comment period for
subzone applications. For any application for production authority
involving a component subject to an AD/CVD order, one commenter
proposed requiring the component be identified in the notice announcing
review of the application, and that the applicant provide the names and
addresses of each known U.S. producer of the component and send notice
of the application to each such U.S. producer. Another commenter
proposed that Federal Register notices announcing applications for
production authority indicate the grantee of the zone and the nature of
the activity but omit the identity of the zone user.

Board position: As a result of the comments received, we have added
a requirement that a Federal Register notice announcing an application
for production authority include information regarding any component
subject to a trade-related measure or proceeding (such as an AD/CVD
order). However, we have not adopted the proposed requirement that
applicants provide the names and addresses of each known U.S. producer
of the component in question and to send notice of the application to
each such U.S. producer. This approach creates transparency through the
enhanced requirement for information in Federal Register notices
without imposing the potentially significant new burdens associated
with the other proposed requirements. We also have not adopted the
proposal that Federal Register notices of proposed production authority
omit the identity of the zone user because such identifying information
can be useful to other parties that wish to gauge the potential
competitive impacts of the proposed authority.

We have not eliminated the public comment period on subzone
applications, as proposed by one commenter. The ordinary procedure to
designate a subzone, therefore, will differ in this regard from the
procedure to designate usage-driven sites under the ASF (with the
exception of situations under Sec. 400.24(c) in which a site clearly
eligible for usage-driven designation is instead being designated as a
subzone based on the circumstances presented). Usage-driven sites can
only be designated within a specific service area already authorized
for the zone grantee through a Board process that includes a public
comment period. However, in response to another comment, we have
reduced the standard length of the comment period for subzone
applications from 60 days to 40 days (the same duration as comment
periods on notifications for production authority pursuant to Sec.
400.37). The standard length of comment periods on other types of
applications remains 60 days. The shorter comment period for subzone
applications reflects the fact that these applications focus solely on
designating the zone space needed for a single operation. Other types
of applications inherently are broader in focus and, therefore, it is
appropriate to allow additional time for the public to develop comments
on such applications. In response to comments submitted, we have set
the standard deadline for CBP comments on an application to match the
end of the period for public comment; however, the wording of this
provision reflects a recognition that additional time may be needed in
exceptional circumstances.

To help ensure the proper balance between the interests of
applicants and the interests of parties potentially opposed to
applications, we have not adopted the proposed limit on the types of
parties that may submit rebuttal comments. For the same reason, we have
revised this section to refer to the standard that applies to submitted
comments under Sec. 400.27(b), and to further clarify that new
evidence, new factual information, and written arguments submitted by
parties, other than the applicant, after the comment period will not be
considered. As noted in this section, new evidence or information
submitted by the applicant could trigger the (re)opening of a comment
period. We also have not imposed a limit on the period of time during
which a hearing may be arranged. Although the need for such a hearing
is generally rare, it is appropriate for the Board to clearly retain
the flexibility to arrange a hearing at any point in time regarding any
matter pending before the Board.

We have not adopted the proposed changes that would broaden
references to the applicant to include zone participants. Such changes
would inappropriately shift the emphasis away from the applicant.
Further, for a given application, the number of zone participants could
be significant (for example, if the zone operator that is the subject of the application
has a significant number of users). Therefore, the number of parties
that would be involved in the process as a result of the proposed
changes could represent an exponential increase in burden on the Board
staff without necessarily leading to an improved outcome. Any applicant
remains free to coordinate with zone participants on the matters
addressed in this section.

Comments: Numerous commenters proposed reducing the timeframe for
an examiner's development of a report and recommendations from 120 days
to 60 days after the close of the comment period and removing explicit
allowance for further comments from the CBP port director, when
necessary.

Board position: In general, we have not adopted the proposed
reduction in the timeframe for an examiner to develop a report and
recommendations. Rather, in concert with changes to the timeframes for
action on applications involving production authority, we have set the
timeframe for development of the examiner's report/recommendations at
150 days (with the exception of reorganizations of zones under the ASF,
for which we are setting the timeframe at 75 days in recognition of the
generally simpler analysis involved and the greater potential for
direct positive effects resulting from approval). The overall impact of
adjustments to this section is to generally maintain the prior overall
10-month standard timeframe to process the cases subject to this
section (with a general 75-day reduction in that timeframe for ASF
reorganizations). As noted above in response to comments on Sec.
400.31, this approach reflects a necessary prioritization of overall
resources towards cases involving production authority and subzone
designation, or which would facilitate future usage-driven
designations, all of which tend to involve more significant direct
positive competitiveness and employment effects.

We have retained explicit allowance for further comments from CBP
because such a step may be warranted in certain cases. In that context,
we believe that it is important to include a specific provision
addressing that procedure (although the Board's broad, general
authority would allow for such a step to be taken, when necessary, even
in the absence of a specific regulatory provision).

Comments: Numerous commenters proposed the following changes to
Sec. 400.34(a): Reducing the general timeframe for an examiner's
development of a report and recommendations from 150 days to 75 days
after the close of the comment period; adding language regarding taking
into account consistency with prior decisions; and replacing provision
for industry surveys with language regarding conduct of independent and
objective research. For Sec. 400.34(b), those commenters proposed the
following changes: Deleting the reference to ongoing activity in Sec.
400.34(b)(1); adding a sentence from prior regulations regarding the
process by which the net economic effect is determined; and adding
language stating the objective of preventing competitive disadvantages
between companies in the same industry as a result of Board actions.
One commenter stated that the Board should reject changes proposed by
other commenters that would skew the application process in favor of
applicants for production authority.

Board position: We have not reduced the general timeframe for
development of an examiner's report and recommendations consistent with
the revised approach to proposed production authority established in
Sec. 400.14(a). Under that approach, applications subject to this
section will involve circumstances that have been determined to warrant
further review. Such applications will tend to be complex or
controversial in nature. In that context, reducing our proposed
standard timeframes would be inappropriate. Further, we have explicitly
noted that certain circumstances (such as when the applicant or another
party has obtained a time extension for a particular procedural step)
may result in the processing of the application extending beyond the
ordinary timeframe.

We have revised the provision on requests to parties for additional
information to emphasize its broad potential reach, depending on the
circumstances of an individual case. We have also broadened the
provision to allow both industry surveys and industry research to be
used as tools in evaluating potential impacts of proposed production
activity. We have not stated that research or surveys would be
independent and objective, because those qualities inherently are
objectives for all of the work carried out by the Board and its staff.
Nor have we referenced consistency with prior Board decisions, because
such language could create a mistaken impression that the situation
within a given industry inherently remains static over time. For
similar reasons, we have not referred to potential competitive
disadvantages as a result of Board actions, because the language of the
proposed rule already contains an adequate provision establishing that
prior decisions would be considered. We have retained the reference to
``ongoing activity'' because the provisions of this section may at
times be used for reviews of ongoing activity. Finally, we have not
adopted the suggested reinsertion of a sentence from the prior
regulations regarding the process of determining the net economic
effect. That sentence was intentionally removed in the proposed rule
because we believe that weighing positive and negative effects is
inherent in the definition of a ``net'' economic effect, thereby
rendering the suggested sentence superfluous.

Sections 400.33 and 400.34--Examiner's Reviews of Applications

Comments: For both Sec. Sec. 400.33 and 400.34, numerous
commenters proposed the following changes: Broadening references to the
applicant to include zone participants; allowing requests to extend the
period for response to a preliminary negative recommendation, with such
an extension not unreasonably withheld; and removing explicit allowance
for notice and public comment on preliminary recommendations.

Board position: We have modified Sec. Sec. 400.33 and 400.34 to
allow an applicant to request extensions of the period of time to
respond to a preliminary negative recommendation, with such extensions
not unreasonably withheld. We have continued to allow notice and public
comment on preliminary recommendations because such a step may be
warranted in certain cases. In that context, we believe that it is
important to include specific provisions addressing such allowance
(although the Board's broad, general authority would allow for such a
step to be taken, when necessary, even in the absence of specific
regulatory provisions).

We have not adopted the proposed changes that would broaden
references to the applicant to include zone participants. Such changes
would inappropriately shift the emphasis away from the applicant.
Further, for a given application, the number of zone participants could
be significant (for example, if an affected zone operator has a
significant number of users). Therefore, the number of parties that
would be involved in the process as a result of the proposed changes
could represent an exponential increase that would create new burden
without necessarily providing for an improved outcome. Any applicant
remains free to coordinate with zone participants on the matters
addressed in this section.

Comments: Numerous commenters proposed the following changes:
Adding a deadline for CBP headquarters to concur with proposed Board
actions, and to assume concurrence if it is not received by the
deadline; notifying the grantee and directly affected zone participants
and allowing for a meeting request if a Board decision is not
favorable, or if the Board is not able to reach a unanimous decision;
adding a reference to affected zone participant for failure to timely
provide necessary information; allowing an extension of the period to
provide necessary information when requested by the applicant or an
affected zone participant, with such an extension not unreasonably
withheld; deleting the provision allowing for termination of review if
the Board is unable to reach a unanimous decision; when circumstances
presented in an application are no longer applicable, limiting
termination to situations where the applicant or an affected zone
participant has notified the Board; and confirming termination of
review in writing to the applicant and affected zone participant.
Several commenters indicated that the applicant should always be
notified (in writing) of the intent to terminate a review, with 30 days
allowed for a response from the applicant. One commenter also stated
that the term ``material change'' should either be defined or deleted.
One commenter indicated that it did not understand the reason for
allowing the review of an application to be terminated and, in
particular, where the Board is unable to reach a unanimous decision.

Board position: In response to these comments, we have added a
specific timeframe for CBP headquarters to provide its comments on
applications to the Board. We have not adopted the proposal for CBP
headquarters' concurrence to be assumed after 30 days have elapsed.
There is no evidence of any actual need for that suggested provision.

The Board may only approve an application for Board action on a
unanimous decision of the Board's members. If the Board is unable to
reach a unanimous decision, approval is not possible. In those
circumstances, it is more appropriate to terminate the review of the
application than to maintain the application as technically pending
before the Board. Similarly, if the overall circumstances presented in
an application no longer exist as a result of a material change (e.g.,
when the zone participant on whose behalf the application was submitted
has subsequently vacated the facility), it would not be appropriate for
the Board to consider approving the application. Therefore, if the
applicant does not opt to withdraw the application, it would be
appropriate to terminate the review of the application. For these
reasons we have maintained the proposed provisions pertaining to such
termination actions, but we have adopted certain changes to the
language of this section in response to comments submitted.

Based on comments submitted, we have included a provision requiring
notification to the applicant and allowing for a meeting at the request
of the applicant if the Board is not able to reach a unanimous
decision. That provision accords basic procedural rights in such a
circumstance. However, we have not extended that provision to cover
unfavorable decisions by the Board because Sec. Sec. 400.33-400.35
already include procedural rights for the applicant in that
circumstance (i.e., when a case examiner has made an unfavorable
recommendation on which the Board will be basing a decision). We have
also retained the requirement that an applicant be notified of the
Board's intent to terminate a review, clarified that such notification
would be in writing, and continued to allow a 30-day period for a
response. We also have adopted the substance of suggested changes
pertaining to allowances for extending the period to provide necessary
information and for confirming termination of a review in writing to
the applicant.

We have not extended the provisions of this section to apply to
zone participants because, as noted in response to comments on Sec.
400.33, such changes would inappropriately shift the emphasis of the
Board's procedures away from the applicant. Further, for a given
application, the number of zone participants could be significant.
Therefore, the number of parties that would be involved in the process
as a result of the proposed changes could increase exponentially and
create substantial new burden without necessarily providing for an
improved outcome. Any applicant remains free to coordinate with zone
participants on the matters addressed in this section.

Based on a public comment, we have also delegated authority to the
Executive Secretary to approve applications for subzone designation.
However, we have limited that delegation to the circumstance where an
approved subzone will be subject to the overall activation limit for
the sponsoring zone as established by prior Board action (with certain
language also added to Sec. 400.24(d) specific to the establishment or
modification of such activation limits). That limitation reflects the
FTZ Act's requirement that ``[a]ny expansion of the area of an
established zone shall be made and approved in the same manner as an
original application.'' The meaning of the term ``zone'' in the FTZ Act
is the physical space in which zone procedures are in use. For example,
``[f]oreign and domestic merchandise * * * may, without being subject
to the customs laws of the United States * * * be brought into a zone
and may be stored * * * and be exported, destroyed, or sent into
customs territory of the United States therefrom * * * but when foreign
merchandise is so sent from a zone into customs territory of the United
States it shall be subject to the laws and regulations of the United
States affecting imported merchandise'' (section 3 of the Act, 19
U.S.C. 81c). Given the separation in the 1970s of the FTZ Board zone-
site designation process from the U.S. Customs Service (now CBP)
process of activating portions of designated zone sites, the term
``zone'' as used in the FTZ Act now only applies to physical space that
has been both designated and activated. In that context, designating a
subzone would only require action by the Board if the subzone were not
subject to an existing Board limit on the amount of space that could be
activated (i.e., used as a ``zone'' under the FTZ Act) within the zone
in question. It should be noted that a similar analysis of the
significance of the term ``zone'' in the FTZ Act was a basis for the
FTZ Board's adoption of the ASF in 2008. The ASF allows designation of
additional sites for specific operators/users without Board action
provided that the additional sites will remain subject to a specific
limit set by the Board on the overall amount of space that can be
activated (thereby preserving the Board-approved ``area'' that
functions as a ``zone'').

Finally, the Board received a number of comments pertaining to
various sections of the regulations indicating that existing processes
and distinctions between types of zone sites may not constitute the
most efficient and effective mechanism for facilitating zone use. As
noted in our response to comments on Sec. 400.11, a streamlining of the existing site-
designation frameworks is a matter that the Board plans to address in a
subsequent proposed rule.

Comments: Numerous commenters proposed that, when the CBP port
director's concurrence does not accompany a request for a minor
modification, the Executive Secretary should notify the port director
of the request, and 15 days should be allowed for the port director's
concurrence. One commenter stated that the 20-day timeframe for CBP
port directors' reports provided in the prior regulations (15 CFR
400.27(f)(2)) should be maintained.

Board position: In response to these comments, we have incorporated
a specific timeframe for CBP input on requests (i.e., the 20-day period
provided in the prior regulations). In addition, in this section and
similar sections, we have used the general term ``comments'' in place
of the more specific terms ``concurrence'' or ``report'' to reflect
that any CBP input pertaining to a request may vary in nature and scope
depending on the type of request and the specific circumstances
involved.

Comments: Numerous commenters proposed the following revisions to
this section: Changing the requirement for a grantee's approval for
activation to a requirement for the grantee's concurrence; removing the
reference to the grantee from the requirement that permits be obtained
from governmental authorities; adding a reference to administrators;
and removing the reference to CBP port directors due to those
commenters' proposed creation of a separate section specific to the
port director's role as a representative of the Board.

Board position: This section now combines proposed Sec. 400.41
(``Operation of zones; general'') and proposed Sec. 400.44
(``Requirements for commencement of operations in a zone''). Combining
the two sections does not affect the substance of the provisions
contained therein. Regarding changes proposed by commenters, we have
not added a reference to administrators in this section. Although a
grantee may engage a third party to conduct certain functions on its
behalf, it remains the grantee's responsibility to ensure that the
reasonable zone needs of the business community are served by the
grantee's zone. We have modified this section to indicate that a
grantee may either approve or concur on activation. That change is
consistent with other regulations pertaining to the activation process.
We have eliminated the reference to the grantee's obtaining permits
because meeting any requirements concerning activity in a given zone
operation should be the direct responsibility of the operator. We have
retained the reference to the role of CBP because it usefully
reinforces the language of new Sec. 400.7.

Comments: Numerous commenters expressed concerns about what they
characterize as significant new requirements in proposed Sec. 400.42,
indicating that the requirements would demand additional staffing and
funding at grantee organizations at a time when such resources are
scarce, and that the requirements could lead to grantees' relinquishing
their roles due to the added burden. Those commenters proposed the
following specific changes: using the phrase ``public utility
principles'' to clarify that zones are not public utilities; deleting
the word ``agent'' in general; adding the word ``administrator'' in
several contexts; removing language indicating that grantees' fees
recover costs incurred by those grantees; removing a requirement that
any cost passed on to a zone participant based on a function that a
grantee contracts to a third party must be based on going rates for
such a function; and removing a requirement for fees to be paid
directly to grantees (or public entities).

One commenter indicated that greater specificity on the public
utility requirement was overdue and essential. One commenter agreed
that rates and charges should be fair and reasonable and based on costs
incurred by the grantee in the administration of the zone. One
commenter stated that return on investment should be able to take into
account past subsidies that an economic development organization
provided to keep a zone active and viable.

One commenter stated that proposed Sec. 400.42 appears to impose
excessive burden and give rise to an inordinate amount of scrutiny over
the internal management of a zone, and that each grantee should be
allowed to operate in a way that best suits its zone. Another commenter
stated that the regulations cite public utility as the basis for
proposed changes, but that the FTZ program today is very different from
the time when Congress originally envisioned the program (when the
public utility concept made sense). The commenter stated that the
proposed section takes away from grantees the authority to develop zone
financing plans, that the Board should not try to take such authority
away from grantees, and that a zone should be paid for by its users.
That commenter also stated that the proposed regulations assume that
zone users themselves must be allowed to act as operators, but that the
assumption is not balanced against the interests of the grantee.

Addressing the proposed requirement that fees and penalties related
to grantee functions be payable only to a zone's grantee (or a public
agency under contractual arrangement), certain commenters stated that
the provision should allow payment to private non-profit organizations
under contractual arrangement, or to an ``administrator'' engaged by a
grantee. Addressing the payment of fees and penalties to a zone's
administrator, certain commenters stated that such an arrangement
reduces a grantee's burden, provides incentive to the zone's
administrator, and allows for provision of technical help to users.
Those commenters concluded that precluding the payment of fees and
penalties to an administrator needlessly intrudes on a grantee's
management of its zone. One commenter stated that the changes proposed
in Sec. 400.42 would do more harm than good.

Additionally, one commenter proposed stating that each zone be
operated as a public utility, and that the referenced rates and charges
are specific to zone use and must be uniform. The same commenter
indicated that there are many formulas that a grantee should be able to
use to develop its fees, that basing fees on the benefits derived by a
user should be an acceptable formula, and that there is no basis for
authorizing the Board to decide which formula(s) are correct.

One commenter disagreed with the proposed approach in Sec. 400.42,
stating that it is contrary to Executive Order 12866, which requires
agencies to assess available alternatives to regulations, and that the
proposal would require grantees to establish rates based only on costs
without taking into account funding sources available. The commenter
stated that the provision would reduce a grantee's flexibility to set
up an independent rate structure based on the area's economic
development strategy. That commenter recommended giving grantees the
flexibility to establish rate structures allowing distinct rates for
pilot projects, target industries, or differing types of zone
operations.

Regarding a grantee's development of its fees, one commenter
suggested that the Board provide clearer guidance on the time period
over which costs could be recovered and how often the grantee would
need to recalculate its fees. It specifically suggested allowing the
grantee to recalculate fees at five-year intervals. The commenter
proposed applying the ``going rate'' standard only to administrative
service contracts due to difficulties in determining going rates for
occasional, more specialized activities or functions. That commenter
also sought Board guidance on acceptable methods for apportioning costs
across users, noting that various grantees currently appear to use
differing methods. The same commenter proposed that a grantee be
allowed to discount its fees based on a range of circumstances, as long
as the criteria for such discounts were published in the grantee's zone
schedule and applied uniformly.

In response to other comments, one commenter stated that technical
or other services are sometimes included or bundled into the fees paid
by a zone user, that such services carry a real cost and that zone
users should not, in effect, be required to contract with a particular
technical expert in order to be able to operate within a zone.

Board position: We have made a number of revisions to this section
based on public comments. We have retained the language stating that
``each zone shall be operated as a public utility'' because that
language was drawn verbatim from the FTZ Act. We have also slightly
modified the remainder of the sentence following the reference to the
public utility requirement, so it now is also drawn verbatim from the
FTZ Act.

In addition, in response to comments on uniform treatment and
related issues, and the comment that zone users should not effectively
be required to contract with a particular technical expert, we have
stated that users may not be required to use or pay for a particular
provider's zone-related products or services. Any effective requirement
for a user to pay for additional products or services in order to be
permitted to use the zone would be inconsistent with the principles
associated with the Act's public utility requirement. This bar extends
both to a direct requirement to procure a product or service and to an
indirect requirement for such procurement (e.g., through including
costs associated with the availability of technical expertise as part
of the zone's mandatory fees, or through favorable treatment given by,
or on behalf of, the grantee to purchasers of a product/service from a
particular vendor).

In response to the comment claiming that the evolution of the FTZ
program has made the public utility concept less relevant, it is
important to emphasize that the law continues to require that ``[e]ach
zone shall be operated as a public utility'' (section 14 of the Act, 19
U.S.C. 81n); the Board has no discretion to authorize the operation of
the program in a manner inconsistent with that requirement. The Board
has never been a ``rate making'' agency (i.e., it does not try to set
specific fees of individual grantees). However, given the public
utility requirement of the Act and grantees' specific requests for
guidance on the implications of that requirement, it is appropriate to
delineate in the regulations the general principles embodied in the
requirement. We have modified the provision on recovery of costs
through fees to clarify that fees may be imposed to recover costs, but
that a grantee is not obligated to impose fees to recover its costs.
The public utility requirement has the effect of setting a ceiling on
grantees' fees at a general level that allows for recovery of costs
associated with the grantee function plus a reasonable return on
investment but not monopoly profit-taking (by the grantee or by a party
contracted by the grantee for a zone-related function). The public
utility requirement in no way mandates that a grantee collect fees for
all or part of the costs associated with the grantee function if the
grantee would prefer to subsidize that function or has alternate
funding sources available to defray those costs.

Because cost recovery is at the heart of the public utility
concept, we have retained the prohibition on a grantee's basing its
fees on the benefits derived by those who make use of the zone. The
public utility concept is inherently driven by the sponsoring
organization's being able to recover the costs it incurs in making the
zone available to users through fees paid by those users. Basing users
fees on the level of benefit those users derive from the program is an
entirely different model that is not inherently cost-based, and that is
inconsistent with the Act's public utility requirement.

Certain commenters raised the issue of acceptable methods for a
grantee to apportion costs to different categories of users. The Act's
requirement that a grantee afford users uniform treatment under like
conditions can also have implications for the apportionment of costs.
Based on the public utility and uniform treatment requirements, a
grantee may legitimately establish different levels of fees for (i.e.,
apportion costs differently to) different categories of zone
participants based on certain criteria (e.g., an operator's square
footage of activated FTZ space, the value of the operator's merchandise
admitted to the zone in a given year, whether the operator qualifies as
a small business under Small Business Administration (SBA) criteria, or
whether the operator is in an industry sector targeted for attraction
based on community economic development plans) so long as the criteria
are applied uniformly to each zone participant, and the resulting fee
structure is published in the grantee's zone schedule (see Sec.
400.44). However, consistent with the provision that ``zone
participants shall not be required (either directly or indirectly) to
utilize or pay for a particular provider's zone-related products or
services,'' different fees may not be applied to zone participants by
(or on behalf of) a grantee based on whether a given zone participant
has engaged a particular third party to provide FTZ-related services.
Applying different fees on that basis would effectively require zone
participants to procure products or services from a particular third
party in order to qualify for a lower fee imposed by (or on behalf of)
the grantee, which would be inconsistent with the principles
established in section 3 of the Act (19 U.S.C. 81n). Within a
legitimately differentiated category of zone participants (e.g., those
that qualify as small businesses under SBA criteria), a single level of
fee(s) must be applied.

In response to comments, we have removed references to ``agent'' in
this section but have not incorporated certain commenters' proposed
references to ``administrator.'' Instead, where appropriate, we have
simply mentioned that certain actions can be performed ``on behalf of''
a grantee. We also have removed both the requirement that third party
costs passed on to zone participants be based on going rates, and the
requirement for fees to be paid directly to grantees (or public
entities). Both of those requirements were intended to bolster
enforcement of the public utility requirement, but they do not
represent the least burdensome means to accomplish the Board's policy
goals. Combined with provisions such as Sec. 400.45, which allows
complaints pertaining to public utility, this section should be
sufficient to ensure compliance with that the Act's public utility
requirement.

We agree with commenters that return on investment may take into
account past subsidies that a grantee provided to
sustain its zone. It does not seem appropriate to delineate a specific
maximum period of time for cost recovery. Only one comment suggested a
specific time period, and specifying a period in a regulation could
affect a large number of grantees (the vast majority of which have not
addressed this point). However, the five-year interval proposed by one
grantee for recalculating its fees (which could include recapturing
prior subsidies by the grantee to sustain the zone over that five-year
period) is one reasonable approach. The fees in the resulting zone
schedule could incorporate the recovery of costs incurred over the
five-year period in question.

Finally, contrary to one commenter's assertion, the proposed
regulations were not based on an assumption that zone users must be
allowed to operate for themselves (rather than leaving the possibility
open for the grantee to serve as operator). However, multiple comments
on Sec. 400.43 proposed providing potential and existing users the
right to operate their own zone sites directly or through one or more
contractors. We believe that this issue is properly within the realm of
the Act's public utility requirement but, because it was not directly
addressed in the proposed rule and is of potential interest to numerous
parties, the Board intends to address it through a subsequent rule.

Comments: Numerous commenters supported the general concept of
uniform treatment delineated in Sec. 400.43, but expressed concerns
about negative impacts that would result from specific provisions
(especially the preclusion of conflicts of interest in Sec.
400.43(e)). They perceived, inter alia, that grantees' ability to
obtain needed zone-related advice and services would be adversely
affected. Those commenters proposed an alternative approach that would
require conflicted parties to disclose the conflict of interest and
recuse themselves from decisions. The same commenters also proposed the
following range of changes: adding the term ``administrator''
accompanying ``grantee;'' stating that zone participants include only
operators and users, with property owners treated as a distinct
category; including the right to modify standard contractual terms and
stating that those terms should be specific to zone participation;
replacing the requirement for standard contractual provisions to be
included in a grantee's zone schedule with a requirement that standard
provisions be provided to the public and the Board on request;
modifying the provision on neutral criteria to be applied by grantees
in evaluating proposals for FTZ sponsorship; adding that users may not
be required to use or pay for zone-related products or services that
they do not elect to procure; and allowing potential and existing users
the right to operate their own zone sites directly or through one or
more contractors. Two commenters stated that a grantee should not be
forced to sponsor any project proposed for its zone. One commenter
indicated a need for authority or a directive to require modification
of operators' agreements that would be non-compliant under proposed
Sec. 400.43.

One commenter stated that regulations directing how a grantee
manages services associated with its zone are likely to be
counterproductive at both the local and national level. That commenter
proposed revisions including that, in a given zone, there could not be
a requirement that zone participants purchase zone-related services
(such as inventory control systems, application preparation, or
customs-related brokerage or consulting) from the zone's administrator
or any other specific party. Another commenter stated that proposed
Sec. 400.43 appears to impose excessive burden and create inordinate
scrutiny of the internal management of a zone, and that each grantee
should be allowed to operate in a way that best suits its zone.

Two commenters stated that the regulations should continue to allow
operator's agreements between the operator and the zone's
administrator, with one commenter indicating that this existing type of
arrangement can be more responsive to operators' needs when the grantee
is a public agency with inherently time-consuming internal processes.
One commenter indicated that the regulations should not preclude
payment of fees to the zone's administrator rather than the grantee,
stating that a public agency may prefer not to mingle zone-related fees
with broader public finances.

One commenter stated that the Board's approach in Sec. 400.43
reflects a failure to enforce existing law and punish wrongdoers, with
the Board instead proposing to deny numerous rights and protections
embodied in law and equity through an approach that is discriminatory,
arbitrary and capricious. The commenter further states that Sec.
400.43 contravenes the FTZ Act, claiming that the FTZ Act requires the
Board to provide ``uniform treatment'' to those who ``participate in''
a zone. The commenter also states that the proposed provision would
have a negative impact on the entire FTZ program.

One commenter stated that the proposed approach to uniform
treatment ignores the positive role that third-party expertise has
played in the success of various zones, and instead proposes all-
encompassing mandates that would cripple grantees' abilities to adjust
to local circumstances. Another commenter proposed to address uniform
treatment by simply requiring contracts include a stipulation that all
participants will be treated fairly and equally under the uniform
treatment and public utility requirements of the FTZ Act.

One commenter stated that many grantees may not currently have
evaluation criteria for reviewing FTZ proposals, and that the
subsection on neutral criteria for evaluating proposals would seem to
require grantees to develop such criteria, creating a burden that is
unnecessary given other protections proposed in Sec. 400.43, and also
creating potential additional risks or liability for grantees.

One commenter supported the enhanced enforcement provisions
proposed in this section but stated that the Board should not limit the
conflict-of-interest preclusion to the proposed list of grantee
functions.

Board position: The FTZ Act establishes a core requirement that a
zone grantee afford ``uniform treatment under like conditions'' to zone
participants. Therefore, a grantee may not manage its zone in any
manner that it chooses. Management of a zone is constrained by the
uniform treatment requirement (as well as other requirements of the
Act, such as to operate the zone as a public utility). Given that
grantees must comply with the law, it is beneficial to grantees for the
Board's regulations to provide detail regarding the operational
implications of the FTZ Act's requirements. Nevertheless, in response
to comments submitted, we have simplified this section and removed
several provisions. This section establishes requirements for (1) the
application of uniform treatment in the evaluation of proposals from
zone participants by grantees (and other parties acting on behalf of
grantees, where applicable), in Sec. 400.43(b), and (2) justification
for any differing treatment afforded, in Sec. 400.43(c). The range of
functions targeted in proposed Sec. 400.43(e) has been narrowed, and
the provision has also been supplemented by allowing the Board to
authorize waivers (see discussion below specific to adopted Sec.
400.43(d) and in response to several additional comments). Therefore,
as adopted, this section substantively addresses the concerns expressed
about potential impacts on the ability of grantees or zone participants to
procure zone-related services while maintaining safeguards to ensure
the integrity of the FTZ program.

In response to multiple commenters' proposals that the regulations
state that users may not be required to use or pay for zone-related
products or services that they do not elect to procure, we have
inserted a new final sentence in Sec. 400.42(a). We have also
reinforced that principle by stating that treatment of a zone
participant may not vary depending on whether the zone participant has
procured any particular product or service, including from a particular
supplier. In response to a comment, we have eliminated the requirement
that a grantee apply neutral criteria in evaluating proposals from zone
participants. The requirement seemed to imply that each grantee must
establish such criteria, but many grantees in fact may not currently
have specific criteria they apply. Developing those criteria would
create a significant burden for grantees. Rather than impose such a new
requirement on grantees, our revised approach focuses on gauging
performance rather than dictating behavior.

We also have eliminated the requirement that agreements be made
solely with the zone's grantee. That proposed provision would have
affected a number of existing contractual arrangements and increased
burden on a number of zone grantees. The provision did not represent
the least burdensome means to accomplishing the Board's policy
objectives. In concert with changes made elsewhere in these
regulations, we also have substituted a reference to ``any person
undertaking a zone-related function(s) on behalf of the grantee'' for
the term ``agent'' in Sec. 400.43(h).

We have retained the requirements for agreements to be made in
writing. Evidence indicates that the vast majority of agreements
between zone grantees and zone participants are already in writing, but
a limited number of examples of purely oral agreements exist. The
Board's ability to gauge the uniformity of treatment afforded by a
grantee depends on agreements being in writing. This provision as
adopted will also establish a foundation for enabling the Board to
consider proposing in a subsequent rule a requirement that a grantee
disclose to a zone participant contractual provisions concluded with
other zone participants that differ from the provisions in effect or
being offered to the zone participant in question.

As requested, we have retained the statement in Sec. 400.43(b)
that uniform treatment does not require acceptance of all proposals by
zone participants. That subsection also requires that the bases for a
grantee's decision on a proposal must be consistent with the uniform
treatment requirement. However, we have not adopted in this section and
in the definition section (at Sec. 400.2(x)) commenters' proposed
limitation of the term zone participant to exclude property owners.
Given the role of the grantee (and other party acting on behalf of the
grantee, where applicable) in evaluating proposals from property owners
for participation in a zone, uniformity of treatment under like
conditions should not be limited to zone operators and zone users.

Comment: Regarding the proposed requirement for a grantee to have
standard contractual provisions that if offers to zone participants,
one commenter stated that a grantee should have some limited latitude
to change standard contract provisions through negotiation with
individual zone participants and should make all participants aware of
the provisions for which the grantee is willing to make changes. The
commenter also stated that Board guidance would be helpful regarding
which types of provisions should not be subject to negotiation.

Board position: We have eliminated the requirement for a grantee to
have standard contractual provisions because of the new burden that it
could create for a number of grantees. Further, grantee negotiations
with zone participants regarding contractual provisions are
commonplace, with the provisions of actual contracts often diverging in
some manner from the standard provisions offered to zone participants.
That divergence reflects the reality of the business environment, but
also renders pointless a requirement for grantees to offer standard
contractual provisions. As noted above, the Board will instead consider
proposing in a subsequent rule a requirement that grantees disclose to
zone participants contractual provisions concluded with other zone
participants that differ from the provisions in effect or being offered
to the zone participant in question. That requirement would be targeted
directly to the disclosure of actual differences in treatment afforded
to zone participants, thereby enabling them to evaluate whether a
grantee's contracting practices violate the uniform treatment
requirements of the FTZ Act and of these regulations.
400.43(d)--Avoidance of Non-Uniform Treatment

Comments: Numerous commenters opposed the proposed provisions in
Sec. 400.43(e) (``preclusion of conflicts of interest'') for reasons
including: Likely reduction or elimination of grantees' ability to
obtain needed professional advice and assistance; causing more harm
than good; the Board should establish principles rather than attempt
``one-size-fits-all'' solutions; zone users are capable of defending
their own interests without government interference in the guise of
protection that is not actually needed; the provisions would limit
freedom of choice for users and have a negative impact on grantees'
operational costs and efficiencies; and the most talented and
experienced experts would find representing users more lucrative than
representing grantees, leaving grantees with either lower quality
representation or higher costs to obtain quality representation.
Certain commenters recommended that the Board find an alternative
approach to ensuring uniform treatment. One of these commenters stated
that legitimate concerns about uniform treatment should be addressed by
stating clear performance objectives, with grantees and contractors
given discretion as to how they meet those objectives. One commenter
stated that this provision is not consistent with the basic regulatory
philosophy and principles expressed in Executive Order 12866, which
requires consideration of the costs to grantees and users, a focus on
performance objectives rather than specific behavior, and narrow
tailoring to impose the least burden.

One commenter indicated that Sec. 400.43(e) was drafted too
broadly and proposed an alternative approach in which the Board could
review situations believed to be problematic and, after notice and
appropriate due process, potentially restrict identified activities on
a case-by-case basis. The commenter provided specific language that
could be used to implement its approach. Another commenter stated that
it generally supports the concept of preventing conflicts of interest,
but expressed concern about the proposed provision's putting grantees
at a competitive disadvantage in obtaining needed professional
services. The commenter recommended modifying this provision either to
define the targeted conflicts of interest more precisely or to limit
the provision's effect to zones that have demonstrated actual uniform
treatment problems (with the Board potentially reviewing zones'
performance of key functions to determine whether non-uniform treatment
exists). Another commenter stated that the proposed preclusion of
conflicts of interest would unintentionally restrict business
relationships that are not actually of concern to the Board. This
commenter proposed a revised provision that would allow the Board to
review situations that may be problematic, gather relevant facts after
notice and appropriate due process, and then restrict particular
activities on a case-by-case basis as warranted.

One commenter stated that this provision appears to be overreaching
and inconsistent with rules pertaining to conflicts of interest that
already apply to attorneys, and could interfere with a party's right to
select counsel of its choice. The commenter proposed a replacement
provision based on the principle of informed consent by both parties.
Another commenter stated that this provision as written, in combination
with the proposed definition of agent in Sec. 400.2(b), could
unintentionally preclude zone operators from providing zone-related
services (such as handling of merchandise or inventory management) to
zone participants. Another commenter stated that the proposed provision
precluding conflicts of interest is excessive and would deny operators
freedom of choice in contracting for outside services.

In response to comments submitted, one commenter stated that zone
users should not be forced, or feel implied pressure, to pay for
consulting or expert services as a condition of participating in the
federal FTZ program.

Board position: In response to comments, we have removed from this
subsection one of the originally targeted functions (``collecting/
evaluating annual report data from zone participants'') and narrowed
the focus of another of the targeted functions (now limited to ``taking
action on behalf of a grantee, or making recommendations to a grantee,
regarding the disposition of proposals or requests by zone participants
pertaining to FTZ authority or activity (including activation by
CBP)''). To counterbalance the elimination of proposed Sec.
400.43(b)'s requirement for agreements to be made directly with
grantees, we have added to this subsection the additional key function
of ``approving, or being a party to, a zone participant's agreement
with the grantee (or person acting on behalf of the grantee) pertaining
to FTZ authority or activity (including activation by CBP).''

Finally, in response to comments received, we have added new Sec.
400.43(f) that will allow the Board to issue case-by-case waivers of
the provision in Sec. 400.43(d) that bars certain categories of
persons from performing certain key functions. This approach strikes an
appropriate balance in order to avoid the types of broad, negative
impacts projected by commenters while continuing to reflect the fact
that a zone grantee often has a monopoly in its region for valuable
access to the federal privilege of FTZ use (with zone participants
reluctant to make uniform treatment-related complaints to the FTZ Board
because of a perceived risk of jeopardizing key relationships with
grantees or with third parties undertaking key functions on behalf of
grantees). The adopted provision reflects the Board's intended use of a
standard format for applications for waivers, but also recognizes that
the Board may need to ask follow-up questions before deciding on a
given application (depending on the circumstances presented in the
application). In considering whether to approve an individual
application for a waiver, the Board will take into account the specific
circumstances presented, and the Board will also impose conditions on
individual waivers, as warranted. As raised by one commenter, a key
factor the Board will consider is whether a grantee's specific
arrangement presents a significant risk that zone users will experience
implied pressure to procure a particular private party's services as a
condition of obtaining access to the federal FTZ program. In total, the
adopted provisions will allow the Board to respond to individual
circumstances, and should avoid the ``one-size-fits-all'' impact about
which some commenters expressed concern.

Comments: Numerous commenters proposed the following revisions to
this section: Eliminating the requirement for the zone schedule to be
submitted to the CBP port director; including references to a zone's
administrator (where applicable); removing the name of the preparer
from the zone schedule; eliminating the requirement for a grantee to
make its zone schedule available on its Web site; and not allowing the
Board to amend the requirements of this section by Board Order, if
warranted.

One commenter stated that the zone schedule should be required to
include a summary of the grantee's standard contractual provisions, but
not to contain the grantee's contract document(s). A number of
commenters proposed eliminating the requirement for zone operators'
fees to be included in the zone schedule. One commenter recommended
that grantees instead retain copies of their operators' rates, charges
and procedures and make them available to users on request. One
commenter stated that a grantee's fees for zone operations should be
included in the zone schedule if the grantee is the operator of the
zone.

Another commenter expressed a concern about the potential impacts
of requiring publication of zone schedules on the Internet. One
commenter stated that it would be fair and reasonable for the Board to
post all zone schedules on the Board's Web site. One commenter
supported both the requirement for a grantee to post its zone schedule
on the grantee's Web site and the provision for the Board to make zone
schedules available on the Board's Web site.

Board position: We have eliminated the proposed requirement for a
zone schedule to include a grantee's standard contractual provisions,
which was intended to help ensure that zone participants receive
uniform treatment. These regulations adopt other measures designed to
ensure uniform treatment that will not increase burden for all grantees
(see, e.g., Sec. 400.43), unlike the proposed requirement. We also
have eliminated the requirement that a grantee make its zone schedule
available on its Web site. The Board will instead make zone schedules
available on its Web site, which should create transparency without
placing a burden on each grantee to place its zone schedule on its own
Web site.

In response to the comments, we have eliminated the requirement for
the zone schedule to be submitted to CBP. Any CBP official will be able
to request a copy of a grantee's zone schedule or access that zone
schedule via the Internet, as needed. We have also eliminated the
requirement to include the name of the preparer and have modified this
section to allow for a zone schedule to contain information about any
party that acts on behalf of the zone's grantee. We have not included
the proposed requirement that a zone schedule's title page name a
zone's administrator. The list of required elements for the title page
in no way prevents a grantee from including other information on the
title page. The decision regarding whether additional information is
appropriate for inclusion on the title page is left to the grantee's
judgment.

We have retained the provision allowing the Board to amend the
requirements of this section via Board Order, if warranted. Although it
currently appears unlikely that the Board would need to amend the
requirements, it is important for the Board to have the ability to do
so more quickly than the rulemaking processes would allow, should the
need arise. At the same time, the Board intends that any such amendment would only be
made after an appropriate opportunity for the public to comment.
Separately, we have added a phrase to Sec. 400.44(a) further
clarifying that amendments to zone schedules will not be effective
until submitted to the Executive Secretary.

Finally, in response to a comment pertaining to the requirement for
standard contractual provisions in proposed Sec. 400.43, the Board
intends to address through a subsequent rule potential mechanisms for a
grantee to disclose to a zone participant substantive variations in
contracted provisions. Such a provision would provide transparency in
order to enable zone participants to assess whether uniform treatment
had been afforded by the grantee, and should do so in manner that is
less potentially problematic and burdensome than the proposed
requirement that standard contractual provisions be published in zone
schedules.

Comments: Numerous commenters proposed requiring that affected
grantees (and the grantee's administrator, as applicable) receive
information in a complaint and have an opportunity to respond. Those
commenters also proposed adding a provision for the Board or the
Executive Secretary to initiate a review for cause based on a claim
that no such provision existed in the proposed regulations. The same
commenters also proposed revising the first factor for reviews of
fairness and reasonableness by replacing the reference to actual costs
incurred with a reference to the methodology supporting the rates and
charges. One commenter recommended that the Board not apply the second
factor for reviews of fairness and reasonableness, which cites the
rates at like zone operations at similarly situated zones, until (1)
the Board has classified zones into categories that enable grantees to
determine which other zones are similarly situated, and (2) grantees
are able to review other grantees' zone schedules once those schedules
are made available on the Board's Web site.

One commenter stated that the right to due process requires that a
complaint be disclosed to a party before any fine or ``other
consequence'' could be imposed on that party as a result of the
complaint. One commenter stated that allowing confidential complaints
could lead to incorrect or misleading information being submitted to
the Board without the affected grantee being able to counterbalance it
or to prevent prejudicial conclusions from being reached. That
commenter stated that the provision could lead to lawsuits or undermine
transparency that the Board might be seeking to create. In response to
other comments, one commenter expressed concern about allowing
submission of confidential complaints and stated that due process
should require that the target of a complaint be able to address the
complaint before being subject to an unfavorable action.

Board position: We have retained the proposed provision allowing
for confidential complaints and have not added any requirement for the
disclosure of such complaints. Given the monopoly that a zone grantee
generally has on access to FTZ benefits in the region served by the
grantee, zone participants may fear direct repercussions from
submitting a complaint to the FTZ Board pertaining to a grantee's
compliance with law and regulations. To help ensure the integrity of
the operation of the FTZ program, it is important for zone participants
to have the ability to submit such complaints without fear of less
favorable treatment or even retribution. However, commenters also have
raised valid concerns about due process if a grantee or other party
were to be subject to penalties based on complaints that remained
confidential (i.e., unavailable for review and response). Recognizing
those concerns, the Board simply intends to use confidential complaints
as a basis for determining whether the actions of a particular grantee
or other party should be examined in more detail. Such an examination
would enable the Board to gather information in a process transparent
to the grantee (or other affected party) and then use the information
gathered through that process to evaluate what further action(s) by the
Board might be warranted. The Board would only use information gathered
through the transparent investigation process as a basis for further
Board action or restriction; information that is unknown to the
affected party would not be used.

Regarding reviews of fairness and reasonableness, we have not
replaced the reference to actual costs incurred. Numerous commenters
proposed we reference the methodology supporting the rates and charges.
The Board would indeed examine the methodology a grantee used to
develop its rates and charges as part of any examination that might
occur. However, the fairness and reasonableness of a rate or charge are
questions that must be addressed under the public utility requirement
of the FTZ Act. As described in response to comments on Sec. 400.42,
the public utility concept is fundamentally based on cost recovery. As
such, the actual costs incurred are appropriate for the Board to
consider in evaluating whether a rate or charge is fair and reasonable.
In response to comments, we have eliminated the proposed second factor
for reviews of fairness and reasonableness. We have instead
incorporated language enabling the Board, where applicable, to examine
if a fee a party charges to a grantee for undertaking a function on the
grantee's behalf (passed on by the grantee to zone participants through
the grantee's fees) represents a form of monopoly rent-seeking that
would be inconsistent with the statutory public utility requirement.

Comments: Numerous commenters proposed eliminating the word
``ordinarily'' and separately adding the term ``administrator'' to this
section. One commenter supported this section as providing welcome
clarification for public sector grantees. One commenter stated that the
limitations on grantee liability in this section are obscured by
penalty provisions in Sec. 400.62, with the addition of penalties and
the lack of clarity regarding grantee obligations leading to concern
among grantees. One commenter stated that some degree of liability in
specific situations is an appropriate tool to promote compliance, but
did not elaborate on what those specific situations would be. One
commenter stated that a grantee must be afforded the opportunity to
oversee a zone user in order to protect the grantee and other zone
users. One commenter stated that the regulations need to define more
clearly which oversight activities are ``detailed'' and which are not.

One commenter stated that the proposed provision would do more harm
to grantees than to operators or users that commit violations. The
commenter recommended revising this section to state that a grantee
should only be liable as an operator if the grantee acts as operator
under its own CBP bond and under a user agreement with the grantee's
customer. The commenter distinguished that situation from one where a
grantee has signed an operator's agreement with a company that acts as
its own operator and operates under its own CBP bond, in which case the
company should be held liable for any violations attributed to the
company's actions.

Board position: We have modified this section based on these
comments. Specifically, we have eliminated the word ``ordinarily'' and
added language to clarify the circumstances in which the actions of a grantee (or a
grantee's administrator, where applicable) could create liability that
would not otherwise exist. Specifically, a grantee could create
liability where it does not otherwise exist if it undertakes detailed
operational oversight of or direction to zone participants. Detailed
operational oversight of zone participants would place the grantee in a
position to be aware of specific violations (with an obligation to
ensure the violations are corrected, and liability if the violations
are not), while detailed operational direction to zone participants
(e.g., dictating specific operational procedures) would make the
grantee responsible for ensuring that the direction did not result in
violations. We have included in this rule key examples of detailed
operational oversight or direction, such as review of an operator's
inventory-control or record-keeping systems and specifying requirements
for such a system to be used by an operator.

Comments: Numerous commenters proposed replacing the concurrence of
the CBP port director with notification to the port director, and
adding statements that the retail trade provision only applies to
activated zone space and does not apply to order fulfillment. One
commenter proposed that the regulations define ``retail trade'' based
on the activity covered by the North American Industry Classification
System subsections pertaining to ``store based retail trade.'' One
commenter stated that if CBP will no longer issue binding rulings
pertaining to retail trade, the Executive Secretary should follow
precedent established by existing CBP decisions, with the principles
contained in binding rulings remaining authoritative unless modified or
revoked pursuant to 19 CFR 177.12 (e.g., subject to notice
requirements). The commenter also recommended that the Executive
Secretary's decisions on retail trade be made available to the public.
That commenter also stated that order fulfillment should not be
considered retail trade.

Board position: The specific concerns raised by commenters about
order fulfillment are significant. Therefore, the Board intends to
propose a revised section specifically addressing order fulfillment in
a subsequent rule. In the interim, we have adopted this section with
changes and additions to language based on public comments. In
particular, we have included language regarding the ongoing effect of
decisions made by CBP and the type of procedures to be followed for any
determination that might affect the impact of prior decisions. We have
also provided that determinations made pursuant to this section will be
available on the Board's Web site.

Comments: Numerous commenters proposed moving this section to
subpart E of the regulations, which pertains to zone operations. Those
commenters proposed the following additional changes: Adding a
significant public detriment standard for reviews; notifying the
grantee and affected zone participants and allowing them to submit
evidence in response when threshold factors result in a negative
recommendation; requiring parties requesting reviews to provide
evidence that is probative and substantial; requiring decisions be
based on evidence on the record if the decision would be inconsistent
with the original examiner's report for the operation in question;
requiring negative determinations be supported by evidence on the
record of direct negative impact on a U.S. manufacturer; allowing an
affected zone participant to meet with the Board upon request prior to
issuance of a negative Board decision; removing the ability to impose a
restriction after a preliminary review; and removing the Assistant
Secretary for Import Administration's authority to impose restrictions.

One commenter stated that a party's request for a review should be
disclosed to the affected zone participant prior to initiation of the
review. The commenter also stated that reviews should be subject to the
notice and hearing requirements of Sec. 400.52. That commenter further
proposed eliminating allowing restrictions to be imposed after a
preliminary review or, in the alternative, making restrictions
contingent on a showing that: (1) the requesting party had a
substantial likelihood of obtaining a restriction following full
review; (2) the requesting party would suffer irreparable injury
without the preliminary restriction; (3) the preliminary restriction
would not substantially harm the zone participant or other parties, and
(4) the preliminary restriction would further the public interest, with
the burden of proof on the party requesting the review. Finally, that
commenter stated that a zone participant should be entitled to a refund
of duties or fees paid as a result of the restriction imposed based on
a preliminary review if the restriction is not maintained after full
review by the Board.

Board position: In response to these comments, we have moved this
section to Subpart E, as Sec. 400.49. In addition, we have modified
subsection (b) to indicate that a party requesting a review should
provide information that is ``probative and substantial in addressing
the matter in issue.'' This standard mirrors the standard applied both
to comments submitted on applications and to responses to those
comments. We also have added a sentence to subsection (c) indicating
specific procedures to be followed (i.e., notification to the zone
grantee and a time period for response) prior to any final action to
impose a prohibition or restriction under this section. These changes
are responsive to specific comments submitted, although the actual
approach or language adopted may differ from those proposed by
commenters.

We have not adopted other changes proposed by commenters. The added
provision described above provides a basic procedural right to the
grantee of an affected zone to provide a response to the Board
regarding proposed final action to impose a prohibition or restriction.
The additional changes proposed by commenters would either dilute the
effectiveness and utility of the provision or add significant
complexity. Additional complexity is contrary to the Board's and
multiple commenters' desire to simplify these regulations. Further,
reviews under the corresponding provision in the prior regulations
(Sec. 400.31(d)) have been very rare, and there is no evidence
indicating that such reviews are likely to become more common in the
future. Therefore, there does not appear to be a need to include
significant additional procedural requirements.

Comments: Numerous commenters proposed deleting the reference to
generally accepted accounting principles for zone accounts. For the
annual report provision, those commenters proposed the following
revisions: Changing the proposed 90-day filing period to the 120-day
period that has been the Board's recent practice; allowing the
Executive Secretary to extend the filing period; directing grantees to
submit timely reports (with such reports noting whether any zone
participants have not timely provided their data for inclusion in the
reports); and stating that data submitted by zone participants will be
treated as ``business proprietary.'' Those commenters stated that the Board's annual report to Congress should not
provide company-specific data. One commenter proposed a 90-day
timeframe for a zone user to submit its data to the zone grantee, with
the grantee allowed an additional 30 days for submission of its report
to the Board. Alternatively, the commenter proposed allowing a user or
a grantee to obtain a 30-day extension.

One commenter stated that the format for zones' annual reports
should be revised to take domestic material, labor, overhead and profit
into account for export figures. One commenter stated that the Board
should require annual reports to include information about admission of
merchandise subject to AD/CVD orders for production activity, any
production activity involving a foreign article subject to an AD/CVD
order and approval of such activity by the Board, or a certification
that no production activity occurred involving a foreign article
subject to an AD/CVD order. The commenter stated that the Board should
obtain data from CBP annually on admission of merchandise subject to
AD/CVD orders into zones or subzones with production authority. That
commenter also stated that the Board should publish a report each year
summarizing data obtained from grantees and from CBP to enable parties
to identify discrepancies that should be examined by the Board.

Board position: In response to these comments, we have made a
number of revisions to this section. We have deleted the reference to
generally accepted accounting principles in favor of simply stating
that zone records must comply with the requirements of governmental
agencies with appropriate jurisdiction. Regarding the annual report
provisions, we have retained our proposed 90-day timeframe for
grantees' reports to the Board, but have specifically allowed requests
for time extensions, indicating factors for the Executive Secretary to
consider in evaluating such requests. In addition, we have allowed a
grantee to submit a timely report to the Board without information from
an operator that has failed to timely provide information to the
grantee. With regard to the specific format and contents of reports to
the Board or of reports produced by the Board, as well as the treatment
of specific information provided in reports to the Board, these are
administrative matters that appropriately should continue to be handled
as part of the ordinary functioning of the Board and its staff.

Comments: Numerous commenters proposed the following revisions to
this section: Limiting invitation for public comment to specific
identified situations; eliminating the requirement for local public
notice to be published in a manner that allows at least 30 days for
submission of public comments; limiting a determination on the need for
a hearing initiated by the Board to a period ending 60 days after the
end of the initial public comment period in a proceeding; establishing
a ``materially impacted'' standard for any party requesting a hearing;
requiring the Board to allow any party to present at a hearing,
provided the party has given seven days advance notice; requiring the
Executive Secretary to notify the grantee and affected zone
participants of all parties that will be presenting at a hearing; and
requiring that the applicant and its witnesses be allowed to present
first and rebut last at any hearing.

Board position: Based on public comments, we are requiring that
local public notice allow at least 15 days for public comment on an
application submitted to the Board (rather than the 30 days in the
proposed rule). We also have narrowed the standard for parties that may
request public hearings by stating that only parties that may be
materially affected may make such a request. We have not adopted other
suggested revisions to this section. It is not appropriate to limit the
types of situations in which the Board may invite public comment or the
timeframe during which a determination may be made to hold a hearing.
Given that certain Board proceedings may result in the development of
an extensive record over a significant period of time, the Board must
maintain the ability to invite comment or hold a hearing whenever the
need to do so presents itself. The remaining changes suggested for this
section have not been adopted because they would not improve the
effectiveness of processes in question and, in the case of the order of
presentations at a hearing, would create the appearance of an
unbalanced process.

Comments: Numerous commenters proposed adding the word
``confidential'' immediately before the word ``proprietary'' in the
final sentence of this section.

Board position: We have not made the change proposed by commenters
because the term ``confidential'' has a specific significance as an
official classification action by government agencies. The information
subject to this provision would not have been classified by a
government agency, but rather would be considered by an outside entity
to be ``business proprietary'' in nature. Therefore, the continued
application of the terminology from the proposed regulations, which has
been in use in the prior regulations since 1991, is appropriate.

Comments: Numerous commenters proposed allowing submission of
business proprietary information in applications and stated that data
submitted in annual reports shall generally be considered ``business
proprietary.''

Board position: We have not made these changes. The FTZ Board's
application process is inherently a public process, and includes
publishing notices of applications in the Federal Register and inviting
comments. Therefore, it is appropriate for the FTZ Board to focus the
application process on submission of information that will be available
for public review. With regard to data submitted in annual reports,
some of those data may well be considered ``business proprietary'' by
the zone operators/users that submit the data through their zones'
grantees. However, the FTZ Board cannot assume that all data submitted
are indeed business proprietary. Rather, the Board has been
implementing a new system for submission of annual report data that
specifically allows an individual operator/user to indicate whether it
considers its data business proprietary, in which case only a ranged
version of the data would be reported publicly.

Comments: Numerous commenters proposed adding the phrase ``in whole
or in part'' to Sec. 400.61(b)(4) and requiring notice to zone or
subzone operators. One commenter stated that Sec. 400.61(b)(3) should
specify the adjudicative standard that will govern the hearing and that
the grantee or operator will be able to call and cross examine
witnesses.

Board position: We have added language pertaining to notification
of any known operators to Sec. 400.61(b)(1), and added the phrase ``in
whole or in part'' to Sec. 400.61(b)(4) to enhance clarity. We have
not included additional procedural provisions or details (such as the
adjudicative standard that would apply to hearings) because the need
for such additional details--with their attendant increase in complexity--is unclear given that actual use of
the revocation provision has been very rare. If additional procedural
details become necessary, they could be implemented through a future
rulemaking action.

Comments: Numerous commenters stated that this section would likely
have a chilling effect on the FTZ program, particularly at a time of
dwindling resources of both grantees and operators. Those commenters
proposed the following specific revisions: deleting the inflation-
adjustment provision and related references because it is not provided
for in the FTZ Act and does not act as a deterrent to violations;
adding references to ``administrators'' and changing references of
``operators'' to ``zone participants;'' stating that the $1,000 per day
maximum for fines would include any CBP fines, penalties or liquidated
damages for the same violations; stating that filing and obtaining
approval of a ``voluntary disclosure'' would eliminate or reduce any
penalty; modifying the production-related language to bring it in line
with changes proposed by those commenters for other sections of the
regulations; stating that a grantee would not be subject to a fine
under the annual report-related provision so long as the grantee had
filed a timely report identifying any operators that have not submitted
complete or timely information to the grantee; stating that requests
for extensions of the periods to provide responses or mitigating
evidence will not be unreasonably withheld; changing the delegation of
certain fine-imposition authority to the Assistant Secretary for Import
Administration (from the Executive Secretary); inserting references to
affected parties for actions pertaining to suspension of activated
status; and stating that the Board will give due consideration for
allowing transfers of affected merchandise from a site for which a
determination has been made to suspend activated status.

Two commenters proposed that the Board clarify that operational
activities within zones are within the sole purview of CBP, limit
penalties under this section to specifically defined violations, and
state normal ranges for penalties for each type of defined violation.
Two commenters requested that the regulations explicitly preclude both
the Board and the CBP from imposing fines on the same party resulting
from the same offense. One commenter proposed that the Board: confine
suspensions of activated status and processing of requests solely to
the specific non-compliant operations; clarify who the responsible
parties are for certain violations, to eliminate the potential for
double fines for a single violation; eliminate ambiguity regarding the
timeframe for operators to submit their annual reports to grantees;
clarify the meaning of ``conflict of interest;'' for responses to
notifications of violations, allow parties 30 days and two extensions
of 30 days each if requested in writing; and treat ``inaccurate written
advice provided by a Board staff member'' as binding on the government
rather than as a mitigating factor.

One commenter opposed adopting the proposed section, proposing
instead that the Board retain the existing penalties provision and
insert a brief provision addressing fine amounts for violations
involving production, annual reports and conflicts of interest. The
commenter also stated that penalties should only be assessed pursuant
to a transparent process. Two commenters stated that the Board should
notify a zone's grantee of any penalty action initiated against an
operator within the zone. One commenter stated that the regulations
should clearly define circumstances that could lead to penalties.
Another commenter supported this proposed section as rectifying an
omission in the Board's oversight and monitoring of zone activity. That
commenter proposed that the Board expand this section to include
details of the judicial review process, provide more comprehensive
explanation of decisions, and consider a formal, adjudicative process
for dispute resolution.

One commenter expressed concern that the detailed section
pertaining to fines changes the Board's focus from gatekeeper of zone
access to policing agent over day-to-day zone management. Another
commenter stated that this section as proposed obscures the limitations
on liability expressed in Sec. 400.46. One commenter asked that the
Board clarify whether a confidentiality clause in a grantee's contract
with a zone participant can be relied on by that participant to prevent
a grantee from disclosing to the Board a potential violation pertaining
to that participant, such as the untimeliness of an operator's annual
report to the grantee. One commenter stated that the Board should not
accept other commenters' proposed changes that would reduce the impact
of the penalty provisions.

One commenter stated that this section should be reviewed carefully
to ensure conformity with 19 U.S.C. 81s. That commenter also stated
that the regulations should clarify the approach to be taken when
multiple parties may be subject to penalty for the same violation;
specify the adjudicative standard that will govern any hearing and that
the grantee or operator will be able to call and cross examine
witnesses; and state a clear limitations period on enforcement of any
fine, penalty or sanction.

One commenter stated that fines should not be imposed on any party
for an offense that is not the result of the party's negligence (for
example, clerical error or a grantee's inability to collect information
from an operator for the grantee's annual report).

Board position: It is appropriate for these regulations to contain
detailed procedures for imposing penalties authorized by the FTZ Act.
Delineating such procedures provides important clarity and
predictability for all potentially affected parties. The provisions of
this section target key areas for which the potential imposition of
penalties is an important compliance tool.

In response to the public's comments, we have narrowed the focus of
fining actions pursuant to this section to two specific types of
violations: untimely submissions of annual reports and failure to
afford uniform treatment under like conditions to parties using (or
seeking to use) a zone. We have specifically excluded violations for
production activity because such violations are already subject to
fines by CBP and we want to avoid subjecting a zone participant to
fines from two different agencies for a single action.

Further, the proposal to include fines pertaining to production
activity created a need for the proposed separate section allowing
``prior disclosure'' of violations in order to encourage disclosure and
rectification of any non-compliant activity. However, the effect of
implementing the proposed sections would have been to require zone
operators to disclose violations to two separate agencies under two
distinct sets of procedures. Doubling the disclosure burden on zone
operators would have tended to discourage zone use (with resulting
negative impacts on U.S. competitiveness) without contributing to
improved compliance.

Based on the narrowed focus on Sec. 400.62, we have eliminated the
proposed prior disclosure provision from the regulations. As a
consequence, we have not addressed detailed comments pertaining to the
proposed section allowing for prior disclosure (Sec. 400.63). Although
a number of commenters supported the inclusion of this type of
provision, the provision was relevant to violations involving production activity, which are no
longer targeted in Sec. 400.62. The remaining types of violations
targeted in Sec. 400.62 are not of a nature for which prior disclosure
would be relevant or appropriate.

Because the Board is not adopting the prior disclosure provision,
we do not need to address comments pertaining to the interaction of the
provisions of Sec. 400.62 with the prior disclosure provision.
Similarly, given that production activity is no longer targeted by
Sec. 400.62, we do not need to consider changes to the language of
this section that would flow from changes related to production in
other sections of the regulations. Based on the narrower focus of this
revised section, we have also eliminated ``inaccurate written advice
provided by a Board staff member'' as a mitigating factor, because it
is irrelevant to the types of violations that are now targeted by this
section.

The revisions to this section should help to ensure that a fine is
only imposed on the party(ies) with direct responsibility for the
violation that results in the fine. Based on the comments, we have
added language to this section indicating that a grantee will not be
subject to a fine for an untimely annual report if the grantee has
filed a timely report identifying any operator that has not submitted
complete or timely information to the grantee. The range of changes we
have made to this section should also provide clarity and be in harmony
with the limitations on grantee liability explained in Sec. 400.46.

We have not deleted the inflation-adjustment provision and related
references because Congress mandated the adjustment of these types of
penalties in the Federal Civil Penalties Inflation Adjustment Act of
1990 (Pub. L. 101-410), as amended by the Debt Collection Improvement
Act of 1996 (Pub. L. 104-134). Based on public comments, we have added
language to notify the zone's grantee, in addition to the parties
responsible for a violation.

We have added certain references to an ``administrator'' as an
example of a ``person undertaking one or more functions on behalf of
the grantee'' in concert with changes made to Sec. 400.43. We have
also indicated that parties at a hearing may call and cross examine
witnesses, and that requests for extensions of the periods to provide
responses or mitigating evidence will not be unreasonably withheld. We
have not changed certain references from ``zone operators'' to ``zone
participants'' because, apart from grantees and persons undertaking
functions on behalf of grantees (such as administrators), zone
operators are the only other category of party relevant to the specific
types of violations now targeted by this section. We also have not
changed the delegation of certain fine-imposition authority from the
Executive Secretary to the Assistant Secretary for Import
Administration because the authority in question is for relatively
minor offenses.

In light of the narrowed focus of the fining provision, we have
broadened the potential reach of suspension of activated status to
encompass any ``repeated and willful failure to comply with a
requirement of the FTZ Act or the Board's regulations.'' Given the
``repeated and willful'' standard, we do not anticipate frequent use of
this provision, but it will be available as an enforcement mechanism,
if needed. We have not added the proposed additional references to
``affected parties'' for actions pertaining to suspension of activated
status. We have instead added references to the grantee of a zone. A
zone's grantee would be in a position to notify affected parties. The
FTZ Board would not necessarily have information regarding the range of
parties that might be affected by suspension of activated status.
We have added that the Board will give due consideration to and
make allowance for the transfer of merchandise prior to the suspension
of activated status, because such consideration is appropriate. We have
not included additional procedural provisions or details (such as the
adjudicative standard that would apply to hearings) because the
proposed provisions already provide a significant increase in the level
of procedural detail pertaining to penalty actions. The Board should
develop a practice under the procedural details provided in these
regulations before deciding whether to adopt additional provisions or
details.

We have added language clarifying that suspensions of activated
status and processing of requests will be targeted to the specific non-
compliant operations. We have also clarified who will be the
responsible parties for specific violations, so that there should be no
potential for a violator's being subject to double fines for a single
violation.

In response to comments, we have modified Sec. 400.51 to specify a
timeframe for operators' submission of annual reports to grantees. That
change should clarify various parties' potential liabilities for
untimely reports. We have also modified this section and Sec. 400.51
in response to comments to require that grantees disclose to the FTZ
Board whether each of the grantee's operators has submitted the
information required for the Board's report to Congress. Such required
disclosure could not be avoided by an agreement between an operator and
a grantee.

In light of modifications made to Sec. 400.43, we have made
harmonizing changes to Sec. 400.62(c). Those changes, in combination
with elimination of use of the term ``agent,'' should help to clarify
the specific types of parties that would be subject to Sec. 400.62(c).

The provisions of this section would apply equally to any party
with responsibility for a violation. Therefore, it is possible that
multiple parties could be penalized for the same violation. However,
given that the provisions of this section are now focused narrowly on
failures to submit annual reports on time and on violations of the
uniform treatment requirements, the number of parties potentially
affected by this section is dramatically reduced relative to the
proposed rule. Further, an untimely annual report is likely to be the
fault of a single party. Therefore, the sole category of violation for
which multiple parties are potentially likely to share responsibility
is the uniform treatment requirements. Given the importance of
enforcing compliance with the statutory uniform treatment requirement,
it would be appropriate to fine any parties that share responsibility
for such a violation. Finally, we have not adopted a limitations period
for fines or penalties. Given that this section is new, and the
potential variation in circumstances for which fines or penalties prove
to be appropriate, it is not feasible at this time to provide a single
limitations period for enforcement. However, the Board's focus in
applying this section will be to encourage compliance rather than to
penalize past actions for which corrective action has already been
taken.

Comments: Numerous commenters proposed providing an opportunity for
input by the affected grantee and zone participant, issuing a report
regarding the Board's decision, and identifying the court to which
judicial appeal could be made.

Board position: The suggested procedural changes in this section
fail to take into account the nature of the section. Additional
opportunity for input by an affected grantee or zone participant is
unnecessary because this provision is limited to appeals to the Board
by such parties, who will be able to include all desired input in the
appeal documents they present for the Board's consideration. For similar reasons, no additional procedures
are needed stemming from the Board's decision regarding the appeal. The
regulations already contain substantial procedural requirements
pertaining to potential actions by, or on behalf of, the Board.
Finally, we have not included language identifying the court to which
judicial appeal could be made because the Board does not have the
authority to confer, limit, or otherwise delineate the jurisdiction of
Federal courts.

Board position: We have adopted suggested edits where they would
improve the clarity or effectiveness of the provisions in question.
Given their minor or essentially non-substantive nature, we have not
addressed such edits individually in this summary.

Comments: Multiple commenters expressed concern about complexity or
additional burden that they perceived the proposed regulations would
create.

Board position: Concerns about complexity and additional burden
have been considered in the development of these regulations and have
resulted in our making changes, including significantly simplifying the
process and requirements for notifications to request production
authority. Other changes that reduce complexity or burden include
eliminating potential FTZ Board penalties pertaining to production
activity, and eliminating certain provisions and substantially
modifying others pertaining to uniform treatment (Sec. 400.43).
Although these regulations contain additional detail on certain topics,
that detail provides guidance and clarity for grantees and zone
participants in a manner that should ultimately facilitate those
parties' participation in the FTZ program.

Comments: Numerous commenters stated that the two sentences from
the Preamble to the prior regulations regarding the public policy
objective of the FTZ program should be included in the Preamble of any
future Board regulations. One commenter proposed that one of those
sentences be included within Sec. 400.1 of the regulations.

Board position: The Preamble of the proposed regulations already
contained the primary sentence that is the focus of the comments in
question. We have retained that sentence in the Preamble for these
regulations. We have not included in the Preamble the second sentence
that certain commenters proposed because it could be misread as
implying we would apply different evaluative or procedural standards
than the ones contained in these regulations.

Comment: Numerous commenters proposed adding a new section with
language designating certain offices of the U.S. Commercial Service as
representatives of the Board for export promotion activities and
stating that the Board and its representatives will act in a manner
that prioritizes government export promotion objectives.

Board position: We have not adopted this proposal. The proposed
section deals with matters beyond the statutory authority of the Board.

Comment: Numerous commenters proposed adding a new section stating
that the Board will mandate the development of updated, written
procedures by agencies that require reporting pertaining to zone
activity.

Board position: We have not added the proposed new section. The
proposed section could affect the policies and procedures of a range of
government agencies that fall outside the scope of the FTZ Act, and the
Board cannot require other agencies or bureaus to act.

Comment: One commenter proposed redefining what constitutes a
foreign-trade zone, as well as zone, general-purpose zone and subzone,
to focus on conferring a status rather than designating a geographic
location.

Board position: We have not adopted the type of revisions proposed
by this commenter because the FTZ Act is focused on the designation of
geographic locations as foreign-trade zone sites, and because the
commenter's submission does not indicate a clear advantage to an
approach based on status. However, as noted in our response to comments
on Sec. 400.11, we intend to address through a subsequent rule
simplifying the parallel site-designation frameworks that currently
exist. The intended effect of this change is to enhance the ability of
the FTZ program to improve the competitiveness of U.S. facilities.

Comments: One commenter stated that grantees may be unwilling to
jeopardize the ``permanent'' status of current sites through a
transition to the ASF, which has standard ``sunset'' periods that can
be too short. The commenter proposed grandfathering existing permanent
sites into the ASF. That commenter also proposed changing the process
for designating usage-driven sites to an automatic designation once CBP
had approved activation for a location, with the Board simply notified
of that designation.

Board position: As noted in responses to certain other comments,
the Board intends to address through a subsequent rule simplifying the
parallel site-designation frameworks that currently exist. In that
process, the Board will be able to evaluate provisions affecting
existing zone sites. We have not established an automatic mechanism for
designating usage-driven sites based on CBP approval for activation.
That change would effectively shift authority to designate sites from
the Board and its staff to CBP officials at various ports nationwide,
with a range of potential policy implications for both the Board and
CBP. Given the quick, simple process already available for designating
usage-driven sites, it is not clear that a need exists for the shift in
authority proposed by the commenter.

Comment: One commenter expressed concern that the proposed
regulations concentrate more power in the hands of the Executive
Secretary and Board staff to intrude on zone operations and policy
decisions made by grantees and users.

Board position: These regulations reflect the same fundamental
assignment of responsibilities as the prior regulations. They include
sections providing new specificity regarding compliance with the FTZ
Act's requirements that a zone operate as a public utility and afford
uniform treatment to zone participants. Inherent in the functioning of
some of the specific provisions is a greater role for the Board's
Executive Secretary and the Board's staff. In practice, the adopted
provisions do not constitute ``intrusion'' on grantees or users but,
rather, reflect balanced measures designed to ensure that zones comply
with the requirements established by Congress through the FTZ Act.

Comment: One commenter requested a process by which the Board would
obtain feedback before publication of further notice pertaining to this
rulemaking.

Board position: The Administrative Procedure Act (APA), 5 U.S.C.
553, provides the procedural basis for this action. Accordingly, we
provided interested persons with notice of the proposed rule and almost
150 days to participate in the rulemaking by commenting on it during
the comment period. Further, the public comment period exceeded the
requirements of the APA. In addition, during the public comment period,
the Board staff held detailed public seminars at eight regional hubs
across the United States, as well as in Washington, DC, at which
numerous parties received extensive explanations of the intent of
proposed provisions and answers to their questions. The Board staff
also made such information available interactively via the Internet. In addition
to the lengthy comment period on the proposed regulations, the Board
allowed parties a subsequent 32-day period to submit comments
responding to other parties' comments that had been submitted during
the initial comment period. More than 100 parties submitted comments on
the proposed regulations.

These regulations include key changes that provide dramatically
simplified and expedited procedures designed to boost the competiveness
of U.S. manufacturers and exporters. It is important for those changes
to be implemented as soon as possible. Given the extensive comment
process to date, it is unclear that an additional notice and comment/
consultative process would yield benefits that would offset losses due
to delayed implementation of the key changes made through these
regulations. Therefore, we are not seeking additional comment/
consultation prior to publishing these regulations.

Comment: One commenter stated that the application and approval
process is susceptible to undue influence that can result in unfair
advantages to certain parties, and that the Board must limit the
influence of certain parties to ensure that zone status results in
positive economic effects.

Board position: These regulations contain extensive provisions
aimed at establishing neutral, balanced procedures for evaluating
applications received by the FTZ Board. The commenter presented no
evidence of unfair advantages for any parties resulting from the
Board's processes. In the absence of such evidence, we have found that
the provisions of these regulations are sufficient to ensure that the
Board's processes are fair and equitable.

Comments: One commenter stated that Board decisions should be fair
and reasonable, that a need exists for uniform treatment from the FTZ
Board given what the commenter characterized as frequent changes in the
ASF structure and different application of territorial standards in
different regions, and that the primary intended constituency of the
proposed regulations appears to be grantees rather than the companies
that use the FTZ program.

Board position: Decisions of the Board and its staff consistently
reflect high standards of fairness and reasonableness. The commenter
has provided no examples to support its claims but, as a general
matter, a party's disagreement with a Board decision does not imply
that the decision was unfair or unreasonable. Similarly, a party may
perceive a Board decision on an ASF-related matter--such as pertaining
to the service area for a zone--as inconsistent with other Board
decisions. However, a party to a particular Board case generally is
unfamiliar with the details of other cases decided by the Board. In
that context, what may appear to one party as inconsistent or non-
uniform treatment is more likely to be consistent application of policy
to circumstances that are superficially similar but that actually
differ substantively. Given that the Board has only adopted a single
set of modifications (November 2010) since its adoption of the ASF in
2008, a claim of frequent changes in the ASF structure would also
appear to reflect a lack of adequate familiarity with the Board's ASF
practice. Finally, the statement that the primary intended constituency
of the proposed regulations seems to be grantees would appear not to
reflect a substantive assessment. The proposed regulations contain
certain provisions that focus on grantees and on enhancing their
abilities to perform their functions because 1) the FTZ Act provides
for the Board to grant authority to zone grantees, not to other zone
participants, and 2) the grantee, as a local agency or organization
engaged in promoting trade and economic development, is in the best
position to enable firms in the region it serves to reap the
competitiveness benefits available through the FTZ program.

Comment: One commenter proposed allowing companies engaged in FTZ
production to temporarily remove merchandise under the FTZ operator's
bond for special processing in the United States that cannot be
accommodated in the FTZ.

Board position: The type of procedure proposed by the commenter is
properly in the realm of CBP. CBP's regulations govern FTZ operations
and contain detailed provisions concerning the movement of merchandise
into and out of FTZs.

Changes From Proposed Rule

In addition to the substantive changes mentioned above that we have
made in response to comments, we have made various grammatical and
similar changes to the rule from its proposed form, to increase clarity
and accuracy and reduce potential public confusion.

Executive Orders 12866 and 13563

This rule has been determined to be significant for purposes of
Executive Order 12866. Consistent with Executive Order 13563, we held
public seminars across the country to help maximize public
participation in the rulemaking process (as cited above in response to
a comment), and we adopted approaches designed to impose the least
burden on society while attaining the regulatory objectives (see e.g.,
the responses to comments on Sec. Sec. 400.14, 400.26, 400.42, 400.43
and 400.62).

This rule is also consistent with section 5 of EO 12866, which
instructs agencies to ``periodically review their significant
regulations to determine whether any such regulations should be
modified or eliminated * * * to make the agency's regulatory program
more effective,'' and section 6 of EO 13563, which instructs agencies
to ``consider how best to promote retrospective analysis of rules that
may be outmoded, ineffective, insufficient, or excessively burdensome,
and to modify, streamline, expand, or repeal them in accordance with
what has been learned.'' This final rule replaces FTZ regulations that
have not changed since 1991, and reflects the FTZ Board's view,
following a review of those regulations, that modifying the 1991 rules
will help to ensure that FTZs remain competitive, efficient, and
flexible in the modern, 21st Century global economy.

Regulatory Flexibility Act

At the proposed rule stage of this rulemaking, the Acting Chief
Counsel for Regulation of the Department of Commerce certified to the
Chief Counsel for Advocacy of the Small Business Administration that
this rule will not have a significant economic impact on a substantial
number of small entities. (5 U.S.C. 605(b)). The factual basis for the
certification was published in the proposed regulations and is not
repeated here. We did not receive any public comments on the
certification. As a result, a regulatory flexibility analysis was not
required, and none was prepared.

Executive Order 13132

This final rule does not contain policies with Federalism
implications sufficient to warrant preparation of a Federalism
assessment under Executive Order 13132.

Paperwork Reduction Act

This rule contains information collection activities subject to the
Paperwork Reduction Act. The overall burden on the public is reduced
significantly as a result of the provisions adopted in this rule.

There is no impact on the collection that falls under the Office of
Management and Budget (OMB) Control No. 0625-0109 (Annual Report to
Foreign-Trade Zones Board). This rule amends the collection under OMB
Control No. 0625-0139 (Application to Foreign-Trade Zones Board). Under
this rule, the application requirements associated with the latter
collection for zone applicants, grantees, operators, and users are
significantly simplified, and there is a large overall reduction of the
burden on those parties. The Board will be seeking OMB approval of
these changes, and will notify the public when these amendments have
been approved. After publication of the proposed rule, the FTZ Board
renewed its OMB information-collection authority and reduced the
overall burden estimate for applications from 6,651 to 4,969 hours
based on recent simplifications to the Board's practice. The changes in
this rule will further reduce burden by shifting future production
(manufacturing) applications to a simple notification as an initial
stage. A more detailed application will only need to be submitted if
review of the notification results in a determination that the
additional application step is necessary. We estimate that the average
annual number of notifications will be 33 (an increase from 25
manufacturing applications under the prior regulations), with 5 of
those notifications requiring the additional application stage.
Shifting applications for production authority to the notification
process (with few applications needed as a subsequent step) is expected
to reduce the total annual burden associated with requesting production
authority from 850 to 351.5 hours (a reduction of 498.5 hours). As a
result of this significantly reduced burden, the FTZ program should be
much more accessible to all companies involved in production activity.

In addition to changes pertaining directly to production activity,
the rule also specifically adopts the alternative site framework (ASF)
authorized by the FTZ Board in December 2008. The ASF procedures reduce
the time and complexity involved in designating FTZ sites for many
companies. With increased use of the ASF by zones, there is expected to
be a decline in the number of expansion applications in favor of a
significant number of much simpler minor boundary modifications. The
annual number of expansion applications over time should decline by
half (from 20 to 10) which, combined with some simplified requirements
in this rule, will reduce the burden from 1,980 to 990 hours. We
project an annual average of 120 minor boundary modifications (simple
``administrative'' cases that can be approved by the Board's staff),
with an annual burden of 420 hours.

This rule includes also radically simplifies application
requirements for subzone designation so that the average annual burden
for the estimated 15 subzone applications should fall from 1,695 to
67.5 hours. We note that, unlike the prior rule, this rule entirely
separates the procedures for production authority and subzone
designation. As a result, some applicants which only needed to meet the
subzone application requirements under the prior rule will need to meet
both the subzone and production application requirements under this
rule. Nonetheless, the combined application burden for subzone and
production (manufacturing) notifications/applications should fall from
2,545 hours under the prior rule to 419 hours.

This rule also allows parties to apply pursuant to Sec. 400.43(f)
for a waiver from the effect of Sec. 400.43(d)), which bars parties
that provide products/services to zone users from performing key
functions associated with the zone-grantee role. We estimate that the
average annual number of applications for waivers will be 25, with an
average burden of one hour per application, for a total of 25 burden
hours annually associated with the waiver provision.

Finally, the burden-hours estimate for applications for new zones
is unaffected by this rule, with three applications projected to result
in 444 burden hours annually. The total burden of the various
applications subject to this rule is 2,298 hours (the sum of 444 for
new zones, 990 for expansions, 67.5 for subzones, 351.5 for production
notifications and applications, 420 for minor boundary modifications,
and 25 for waivers pursuant to Sec. 400.43(f)). In sum, there is a net
reduction of 2,671 application-related burden hours annually (from
4,969 to 2,298 hours) through the provisions adopted in this rule.